All major US banks pass Fed's 2024 'stress test'

WASHINGTON

All 31 big U.S. banks have passed the Federal Reserve's annual "stress test" designed to assess how well they would fare in a major financial crisis, the U.S. central bank has said but warned that losses would be higher than last year.

The stress test was broadly similar to last year, the Fed said in a statement, and modeled a severe global recession which caused a 40 percent decline in commercial real estate prices, a 36 percent fall in house prices, and a sharp spike in the unemployment rate.

"This year's stress test shows that large banks have sufficient capital to withstand a highly stressful scenario and meet their minimum capital ratios," Fed vice chair for supervision Michael Barr said in a statement.

"While the severity of this year's stress test is similar to last year's, the test resulted in higher losses because bank balance sheets are somewhat riskier and expenses are higher," he added.

Barr said the higher hypothetical losses stem from three issues: "Substantial increases" in credit card balances and higher delinquency rates; riskier corporate credit portfolios; and a combination of higher expenses and lower income from fees.

This year's stress test was carried out on 31 lenders, up from 23 last year due to the inclusion of some big banks which are only required to conduct them every other year, the Fed said.

The U.S. central bank's test found that the aggregate decline in the capital ratios for the 31 banks was 2.8 percent of risk-weighted assets, up slightly from last year, "but within the range of recent stress tests."