Large banks continued to maintain strong capital levels under a hypothetical severe global recession and substantial stress in commercial real estate and corporate debt markets, according to the results of Dodd-Frank Act-mandated stress tests, the Federal Reserve said today.
“Today’s stress test results clearly show that the nation’s largest banks have strong balance sheets and remained highly capitalized throughout the pandemic,” said ABA President and CEO Rob Nichols. “These institutions have served as a source of strength during this challenging period, helping to support their customers, clients and communities, and they will continue to do their part to spur the economic recovery underway across the country.”
The stress test featured a scenario where unemployment rises by 4 percentage points, spiking to 10.75%, gross domestic product falls 4% from the fourth quarter of 2020 through the third quarter of 2022, and asset prices drop, with a 55% decline in equity prices. Under the scenario, the 23 large banks participating in the test would see capital ratios decline to 10.6%, more than double their minimum requirements.
“Over the past year, the Federal Reserve has run three stress tests with several different hypothetical recessions and all have confirmed that the banking system is strongly positioned to support the ongoing recovery,” said Fed Vice Chairman for Supervision Randal Quarles.