The largest US banks were well-capitalised and prepared to withstand major economic and financial market shocks, the Federal Reserve said on Wednesday, as it presented them with a range of hypothetical disaster scenarios.
The regulator’s annual stress test of banks, which it began doing after the 2008 financial crisis, showed they could withstand a 40 percent drop in commercial real estate prices and total losses of more than half a trillion dollars without failure. Can
The scenarios the 23 largest banks faced included a severe economic downturn, 10 percent unemployment and a large drop in home prices.
The regulators’ goal was to determine whether banks had enough cash or equivalent instruments to cover sudden, unexpected losses. Once banks know whether regulators consider them sufficiently capitalised, they can decide how much money to return to shareholders through buybacks and dividends.
Senior Fed officials said Wednesday they do not expect the bank to announce any plans to distribute cash to shareholders until Friday.
A new one this year: Regulators explored whether the eight banks most involved in trading stocks, bonds and other financial products could trigger a sudden panic in those markets and indicated that future stress tests could include similar scenarios. even if they do not contribute specifically to the capital requirements of banks.
Fed’s supervisory vice chairman Michael S. “Today’s results confirm that the banking system remains strong and resilient,” Barr said. “At the same time, this stress test is only one way of measuring that strength. We must be humble about how risks may arise and continue our work to ensure that banks are resilient to various economic scenarios, market shocks and other stresses.
The tests provided another status report on the banking industry after the crisis this spring, when the failures of four mid-sized lenders, including Silicon Valley Bank, raised questions about the Fed’s ability to oversee them. While Wednesday’s results seem to confirm what regulators have been telling Congress recently that the banking system is safe and stable, they are unlikely to help settle the case that the Fed’s regulatory practices are strong enough. are or not
The process of testing the banks for this year’s results began long before the banking crisis in the spring, and the scenarios under which each bank was examined were designed before the failures, so they do not show any response to the crisis. didn’t represent either type of response, Fed officials said. But they included some of the same factors that brought down regional banks like First Republic Bank, including rising interest rates and declining commercial real estate values.
Fed regulators are following a set of rules enacted during the Trump administration that critics say have weakened oversight of banks in a certain size range — those smaller than too-big-to-fail giants but few are larger than regional and community banks. One sign of that reduced oversight was evident in Wednesday’s results: Not all banks tested in 2022 were tested again in 2023.
Officials said Wednesday they were reviewing other aspects of their bank inspection procedures as well as the rules governing stress tests to determine whether adjustments could be made to help prevent another crisis. Is.
