The 31 banks successfully completed the annual exercise

The stress test assumes unemployment hits 10%, commercial real estate values ​​fall 40%, and real estate prices fall 36%.

“This year’s results show that in our stress scenario, large banks would suffer total hypothetical losses of almost $685 billion, while having capital significantly above their minimum common capital requirements,” Michael said. Barr, vice chairman of Fed supervision. “This is good news and underlines the usefulness of the additional capital that banks have built up in recent years.”

The Fed’s stress test is an annual ritual that requires banks to maintain adequate reserves for bad loans and dictates the amount of stock buybacks and dividends. This year’s version included giants such as JPMorgan Chase and Goldman Sachs, credit card companies including American Express and regional lenders such as Truist.

Although no bank appears to have been seriously disrupted by this year’s exercise, which was based on roughly the same assumptions as the 2023 test, the group’s overall capital levels fell by 2.8 percentage points. percentage, which is worse than last year’s decline.

This is because the industry holds more consumer credit card loans and more downgraded corporate bonds. Loan margins were also reduced compared to last year, according to the Fed.

“While banks are well positioned to withstand the specific hypothetical recession we tested them against, the stress test also confirmed that there are some areas to watch,” Barr said. “The financial system and its risks are constantly evolving, and we learned during the Great Recession the cost of failing to recognize evolving risks.”

The Fed also conducted what it called an “exploratory analysis” of funding stress and the trade collapse that applied only to the eight largest banks.

In this exercise, companies appeared to avoid disaster, despite a sudden rise in the cost of deposits combined with a recession. In a scenario where five large hedge funds implode, the big banks would lose between $70 billion and $85 billion.

“The results demonstrate that these banks have significant exposure to hedge funds but can withstand different types of shocks in their trading portfolios,” the Fed said.

Banks are expected to begin announcing their latest share buyback plans on Friday.