WASHINGTON–The Federal Reserve said its latest stress tests show the country’s largest and most complex banks have sufficient capital to remain above minimum capital requirements even in the face of a severe recession.
The Fed reported its “most severe” hypothetical scenario projected $410 billion in total losses for the 18 bank holding companies that were part of the test.
The scenario tested involved a global recession. with the U.S. unemployment rate rising to 10%, accompanied by a large decline in real estate prices and elevated stress in corporate loan markets.
The Fed said it found under its stress test scenario the aggregate common equity tier 1 capital of the 18 institutions involved would fall from an actual level of 12.3% in the fourth quarter of 2018 to a minimum level of 9.2%. The Fed said that over the past 10 years the common equity capital at the 18 firms has increased by more than $680 billion.
Other Findings
In addition, the test projected loan losses would be similar to those from past years. Credit card loans showed the highest losses, followed by commercial and industrial loans, the Fed said.
The most recent tests were the ninth such tests to be conducted by the Fed and are required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
The banks included in the tests generally had consolidated assets of $250 billion or more and represented 70% of the assets of all banks operating in the U.S.