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Fed Stress Test 2024: Large Banks Face Greater Losses But Maintain Strong Capital Positions In Severe Recession Scenario

The Federal Reserve Board’s annual bank stress test Wednesday reveals that while large banks face greater projected losses than last year in a downturn scenario, they remain well-positioned to endure a severe recession and maintain their capital requirements above minimum thresholds. “This year’s stress test shows that large banks have sufficient capital to withstand a highly stressful scenario and meet their minimum capital ratios,” said the Fed’s vice chair for supervision Michael S. Barr. Although this year’s stress test adverse scenario is as severe as last year’s, it resulted in greater losses due to slightly riskier bank balance sheets and increased expenses, he said. Reflecting on the 2023 regional bank crisis, Barr emphasized that important lessons have been learned. The Fed stated that “large banks are generally well-positioned to withstand a sudden funding shock in the form of shifting deposits.” Additionally, bank net interest income remains resilient in a high-rate environment, even when factoring in the funding shock assumptions. 2024 Bank Stress Test Details, Results This year’s test showed that all 31 banks remained above their minimum common equity tier 1 (CET1) capital ...