Major U.S. banks were found to have robust financial health and strong enough to withstand a global recession.
On June 26, Yahoo Finance reported that in the Federal Reserve’s stress tests, 31 large U.S. banks showed financial soundness despite the relaxation of minimum capital requirements.
This assessment hypothesized a situation in the next two years where the U.S. unemployment rate exceeds 10%, commercial real estate prices plummet by 40%, and the stock market crashes by 55%, with total projected losses of $685 billion.
Still, under such conditions, banks showed they had enough capital to absorb shocks and continue lending.
In particular, JP Morgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs Group, Inc., and Morgan Stanley all held more than twice the minimum Common Equity Tier 1 (CET1) capital ratio requirement of 4.5%.
Regional U.S. banks such as PNC, Truist, Regions, Citizens, and M&T also showed sufficient capital ratios.
Michael Barr, the Vice Chair for Supervision at the Federal Reserve, confirmed that this stress test verified U.S. banks have secured capital that can withstand very high levels of shock.
