Fed vice chair says results 'demonstrate the resilience of the banking system'

A Wall Street sign outside the New York Stock Exchange in New York [Reuters]
A Wall Street sign outside the New York Stock Exchange in New York [Reuters]

The Federal Reserve said Tuesday that all 32 large US banks it examined in its annual stress test have sufficient financial strength to withstand a severe economic downturn.

The Fed designed the test around a scenario involving a sharp global recession, with unemployment rising to 10 percent, commercial real estate values plunging 39 percent and home prices falling 30 percent.

Under those hypothetical conditions, the banks still met minimum common equity capital requirements and would be able to continue lending to businesses and households, the Fed said.

The banks were projected to absorb more than $708 billion in loan losses under the scenario, yet their overall capital ratios declined by only 1.6 percentage points.

Projected losses included roughly $200 billion from credit card debt, about $160 billion from commercial and industrial loans, and approximately $75 billion from commercial real estate.

The Fed said the test results do not affect the amount of capital the large banks are required to hold.

Fed Vice Chair for Supervision Michelle Bowman said Thursday's results "demonstrate the resilience of the banking system."


mokiya@heraldcorp.com