Major US banks are well prepared and resourced to deal with a severe recession and continue lending to households and businesses, the Federal Reserve said on Wednesday.
All 32 large banks subjected to the Fed’s annual “stress test” exercise were found to have passed, maintaining more than the minimum required liquidity in the test.
“Despite absorbing more than US$708 billion in total loan losses under this year’s hypothetical scenario, capital declined only 1.6 percentage-points in aggregate, staying above minimum capital requirements,” a Federal Reserve statement said.
Last year’s stress test had seen 22 banks tested against US$550 billion in losses, a similar level of severity. All 22 passed in 2025 as well.
“Today’s results underscore the strength of the banking system,” the Fed’s vice chair for Supervision Michelle Bowman said.
“As we work to increase the transparency and accountability of the stress test, public feedback will help us continue to improve and instill greater confidence in the stress test and its results.”
This year’s scenario included a severe global recession with elevated stress in commercial and residential real estate markets.
The hypothetical crisis included a 39% drop in commercial real estate prices and a 30% fall in house prices. Equity prices dropped by 58%.
The unemployment rate rose around 5.5 percentage-points to reach 10% in this situation, with a corresponding decline in economic activity. Real GDP fell by 4.6% from its peak to its trough in the scenario.
Of the US$708 billion in projected losses during the tested scenario, 89% were in loan losses, with the rest falling in various categories, including one percent from securities losses.
The stress tests were implemented in the wake of the 2008 global financial crisis, and they apply to banks with at least US$250 billion in total assets, including a top tier designated as “global systemically important banks.”
Smaller banks are subject to the tests once every two years, as was the case this year.
