The results of the Federal Reserve’s annual bank stress test showed that while large banks remain well positioned to weather a severe recession and stay above minimum capital requirements, the Fed announced yesterday. Under the 2025 recession scenario, the common equity tier 1 capital ratio declined by 1.8 percentage points in the aggregate. When averaged with the 2024 results—as proposed by the Fed in order to reduce year-to-year volatility in calculating capital requirements—the aggregate capital decline was 2.3 points.
This year’s stress test scenario included a severe global recession with a 30% decline in commercial real estate prices, a substantial increase in office vacancies and a 33% decline in house prices, according to the Fed, less severe than in 2024. All 22 banks tested remained above their minimum common equity tier 1 capital requirements during the hypothetical recession, after absorbing total projected hypothetical losses of over $550 billion.
ABA President and CEO Rob Nichols welcomed the results, which he said “demonstrate that America’s banking system remains strong and highly capitalized, and that the industry is well prepared to navigate any economic conditions.” Nichols added that “the results also underscore the importance of increased transparency in the stress testing framework, which would further reduce uncertainty and promote a fairer regulatory environment.” He praised “recent regulatory actions [that] demonstrate that policymakers are willing to rethink requirements that are unnecessary given the strength of the banking sector.”
