Fed stress test shows large banks well positioned to endure severe recession

The Federel Reseve stated: “The results of the Federal Reserve Board’s annual bank stress test showed that while large banks would endure greater losses than last year’s test, they are well positioned to weather a severe recession and stay above minimum capital requirements. Additionally, the Board published aggregate results from its first exploratory analysis, which will not affect bank capital requirements… All 31 banks tested remained above their minimum common equity tier 1 (CET1) capital requirements during the hypothetical recession, after absorbing total projected hypothetical losses of nearly $685 billion. Under stress, the aggregate CET1 capital ratio-which provides a cushion against losses-is projected to decline by 2.8 percentage points, from 12.7 percent to 9.9 percent. While this is a greater decline than last year’s, it is within the range of recent stress tests.” Publicly traded companies in the space include Bank of America (BAC), Citi (C), Goldman Sachs (GS), JPMorgan (JPM), Morgan Stanley (MS), U.S. Bancorp (USB) and Wells Fargo (WFC).