The U.S. Federal Reserve on Thursday assigned passing grades to the nation’s 33 largest banks in annual stress tests, which assess each lender’s ability to weather a severe economic downturn.
In a series of doomsday hypothetical scenarios drawn up by the Fed, banks would collectively lose $612 billion and group capital ratios would fall to 9.7%, more than double the minimum requirement, the Fed said.
The banks, which included JPMorgan Chase and Goldman Sachs as well as US subsidiaries of foreign banks such as Credit Suisse, had to show they were maintaining capital levels above government-mandated minimums after enduring the scenarios outlined by the Fed. in February.
The results confirm the financial strength of the largest US banks, some of which are classified by regulators as systemically important to the economy.
Credit Suisse’s U.S. subsidiary was the hardest hit by capital in stress tests, with its core capital ratio, or CET1, down nearly eight percentage points, followed by HSBC and Goldman.
The bulk of the hypothetical losses came from $450 billion in loan losses and $100 billion in trading and counterparty losses. Compared to last year’s stress tests, banks reported more than $50 billion in additional losses and suffered greater impacts on their capital reserves.
“This year’s what-if scenario is more challenging than the 2021 test, by design, and includes a severe global recession with significant stress in the commercial real estate and corporate debt markets,” the statement said. Fed in a statement, attributing banks’ resilience to “substantial” capital accumulation since the global financial crisis more than a decade prior.
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