How many banks passed the stress test?
The test, which evaluated 31 banks, projected total hypothetical losses of nearly $685 billion under a severe recession scenario. Despite these losses, all banks maintained capital levels above the minimum requirements.
The aggregate common equity tier 1 (CET1) capital ratio is projected to decline by 2.8 percentage points to 9.9% – a greater decline than last year’s, but within the range of recent stress tests.
Barr noted that “while the severity of this year’s stress test is similar to last year’s, the test resulted in higher losses because bank balance sheets are somewhat riskier and expenses are higher.
“The goal of our test is to help ensure that banks have enough capital to absorb losses in a highly stressful scenario. This test shows that they do.”
The hypothetical scenario included a severe global recession, a 40% decline in commercial real estate prices, a substantial increase in office vacancies, and a 36% decline in house prices. The unemployment rate rises nearly 6.5 percentage points to a peak of 10%, with a corresponding decline in economic output.
