Fed Stress Test Shows American Banks Can Survive Recessionary Scenario Despite $685 Billion in Losses

U.S.-based banks suffered losses in a hypothetical economic downturn under the Federal Reserve’s 2024 stress tests, but the banks managed to retain minimum capital requirements, and were “well positioned to weather a severe recession.” Stress tests are regular analysis conducted to determine whether banks have enough capital to withstand negative economic situations. In this year’s test, the Fed assessed how 31 banks would perform when faced with tough conditions like a severe global recession, a 40 percent decline in commercial real estate, a 36 percent fall in house prices, a substantial fall in office vacancies, and a 10 percent unemployment rate.  The analysis concluded that the banks would suffer a loss of $685 billion in such a situation, according to a June 26 agency press release. Although this is $144 billion higher than last year’s $541 billion, there were only 23 banks in the test last year. When individual institutional losses are calculated, there was an average loss of $23.5 billion per bank in 2023, compared to $22 billion per bank loss this year....