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| US banks are well positioned to weather a severe economic downturn. (Source: VnEconomy) |
The Fed report said the 23 banks examined were “well positioned to weather a severe economic downturn, with the ability to continue lending to households and businesses even during a severe economic downturn.”
The Fed's Vice Chairman for Banking Supervision, Michael Barr, said the test results showed that the US banking system remains strong and resilient.
However, he also noted, supervision will be carried out regularly to ensure that banks are resilient to a range of economic scenarios, market shocks and other stresses.
This year's test assumes that banks will face a severe global recession, with significant declines in commercial real estate and home prices, rising office vacancy rates and unemployment peaking at 10%.
Under this scenario, the Fed sees banks' equity-to-total capital ratio — a measure of a bank's financial strength, which provides the resources for banks to stay afloat, especially during times of stress — falling 2.3 percentage points to 10.1 percent.
But all 23 banks would maintain capital ratios above the minimum requirement during the hypothetical recession, despite experiencing total expected losses of more than half a trillion dollars.
The Fed's stress test was created after the 2008 financial crisis to ensure that banks can withstand potential shocks.
This year, the test focused on the economic crisis situation, amid widespread turmoil in the financial sector in the US and Europe at the beginning of the year, caused by the collapse of local lenders in California and Silicon Valley Bank (SVB).
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