Fed Stress Test Show Biggest Banks Positioned to Withstand a Crisis

The Federal Reserve System has released results of its annual banking stress test for 2023, showing that 23 large banks assessed had sufficient capital to absorb more than $540 billion in losses and continue lending to households and businesses under stressful conditions.

Since the financial crisis of 2008, banks have substantially increased and maintained capital levels. Despite a 2.3 percentage-point decline, common equity tier 1 capital ratios remain well above the required minimum levels throughout the projection horizon, the Fed said in a news release summarizing the findings. While the decline in the aggregate capital ratio was smaller this year than last, the results vary significantly across different types of banks. The largest banks entered the stress test with large unrealized losses on securities portfolios.

Banks with concentrations in mortgages, credit cards, and commercial real estate generally had larger declines in post-stress capital ratios this year, the report showed.

While stress tests are one of many supervisory tools, the report says, they are the most risk-sensitive and dynamic component of the regulatory capital framework. They help ensure banks can withstand acute financial stress and still be able to lend to households and businesses.

You can read the full report, here.

Posted June 29, 2023.