Fed: Major U.S. Banks Resilient Enough to Withstand Severe Economic Downturn

▲ A Wall Street sign outside the New York Stock Exchange (NYSE)

The U.S. Federal Reserve announced on Wednesday (local time) that all 32 major U.S. banks subjected to its annual stress test are well-positioned to withstand a severe economic downturn. The assessment was based on a hypothetical recession scenario.

The Federal Reserve conducted the test by assuming a severe global economic recession, characterized by a rise in the unemployment rate to 10%, a 39% plunge in commercial real estate values, and a 30% decline in housing prices.

The Fed explained that the stress test results confirmed that the banks would maintain minimum common equity capital requirements even under these hypothetical shock conditions and would be able to continue providing loans to businesses and individuals.

While the banks were projected to incur total loan losses exceeding $708 billion in the hypothetical scenario, their capital ratios were estimated to decline by only 1.6 percentage points overall.

The projected losses included approximately $200 billion in credit card debt losses, about $160 billion in commercial and industrial loan losses, and roughly $75 billion in commercial real estate losses.

The Federal Reserve noted that the results of this test do not affect the amount of capital that large banks are required to hold.

Michelle Bowman, a member of the Federal Reserve Board of Governors, stated, "Today's results confirm that the banking system is resilient."

(Photo: Yonhap News)

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