Fed stress test to give snapshot of largest U.S. banks' health

All 32 of the Federal Reserve’s largest banks passed this year’s stress test. The exercise projected more than $708 billion in losses across the industry, while the common equity tier 1 capital ratio fell by 1.6 percentage points and still stayed above minimum requirements.

The Fed released the results on June 24 at 4 p.m. EDT after saying earlier this month that the annual test included JPMorgan Chase and Bank of America. This year’s severely adverse scenario assumed a global recession, unemployment rising to 10%, commercial real estate prices falling 39% and home prices dropping 30%, alongside stress in corporate debt markets. The test is designed to make sure banks can keep lending to households and businesses during a sharp downturn.

In February, the Fed voted to keep current stress capital buffer requirements in place until 2027, so this year’s results did not change large bank capital requirements. Investors parsed what the results could mean for dividends and share buybacks.

Fed Vice Chair for Supervision Michelle W. Bowman said the latest results underscored the strength of the banking system. Michael S. Barr, who dissented in February, argued that freezing buffers at older levels would weaken the credibility of the stress tests. He said, “I would rather we calculate stress capital buffers using the 2026 stress test reflecting the most recent risk profiles of banks subject to the stress test.”

Analysts at Raymond James expected most banks to announce moderate dividend and buyback plans after the results, while KBW analysts said lenders were likely to focus more on the pending Basel III Endgame proposal than on the stress test itself. The Fed is also overhauling the program, including proposals aimed at improving transparency, public accountability and model documentation.