America’s biggest banks would likely survive a recession, but some of the mid-sized ones could struggle, according to the Federal Reserve’s latest stress test report.
The American central bank has determined that all 23 of the country’s largest banks would be able to survive a severe recession following its “stress tests.”issued on June 28 also showed relative weakness among the midsize and regional banks, however, the stress test only requires the 23 banks to participate in testing,. The list comprises of the country’s largest lenders.earlier this year, Fed policymakers hinted that stress testing could be made harder in the future.
Bank stress tests have been carried out every year since the 2008 financial crisis, which was caused by U.S. banks. The Fed tests how severe banking industry losses would be if unemployment were to skyrocket and economic activity were to severely contract.scenario which caused 40% and 38% declines in commercial and home property prices respectively. In the worst-case scenario, unemployment would hit 10% — it is currently 3.7%.
The 23 largest banks would have collective losses of $541 billion in this scenario, according to the tests.A bank must have a stressed capital of at least 4.5% to be considered for a passing grade, according to the Fed. Capital ratios are a key measure of a bank's financial strength.
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