A massive surge in inflation. A massive drop in the value of the dollar. The collapse of their biggest customers.
America's biggest banks could survive even those dire economic scenarios, according to an analysis released by the Federal Reserve on Wednesday.
The results are particularly noteworthy because, in addition to the Fed, Annual bank stress testsThis year, for the first time, the industry's main regulator put big lenders through an advanced hypothetical challenge that mirrored and amplified some of the news events — including the unwinding of an investment fund that ultimately contributed to the collapse of . Swiss banking giant Credit Suisse,
The industry has met high standards, and is as far along in its recovery as its leaders would have hoped.
The Fed concluded that, “the banking system is able to withstand financing stress under the moderate and severe economic conditions covered in the exploratory analysis.”
About 31 banks — those with more than $100 billion in assets — also passed more routine annual stress tests, as has become common in recent years since the metrics were implemented after the 2008 financial crisis. The tests measure banks’ projected performance through economic recessions, high unemployment, falling housing prices and other scenarios.
Real estate has been a particular subject of pressure for banks, as have several large lenders. Dumping loans linked to office buildingsIn an era of high interest rates and low occupancy for commercial spaces, among other sectors.
Still, the Fed found that all banks had adequate capital, or the amount of money they needed to maintain to ensure stability and provide financial protection against losses.
The analysis is likely to be welcomed by Wall Street's biggest banks, which have united to oppose an international effort to raise their capital requirements, which they argue would reduce their lending capacity and ultimately raise costs on consumers. Finalizing that plan, known as “Final stage of Basel III“, has been long delayed, and Fed officials have said they expect to make further amendments to it before it can be adopted.
A Fed official, speaking to reporters on condition of anonymity Wednesday afternoon, said the new results did not change those plans.
Because banks exceed this standard with such regularity, the usefulness of stress tests has come into question.
Earlier this week, left-wing advocacy group Better Markets, which generally favors more regulation, called the exams “unstressful” and insufficiently challenging. Separately, former Federal Reserve Governor Daniel K. Tarullo said, said last month The regulator should consider less predictive testing.