Even with Unemployment at 10% and Home Prices Down 30%, U.S. Banks Earn a Passing Grade

【Financial News, New York = Lee Byung-chul, Reporter】 Major U.S. banks have enough capital to absorb more than $700 billion in losses even if an economic downturn on the scale of the global financial crisis were to hit.
The Federal Reserve System (the Fed) said on the 24th, local time, that all 32 major banks met the minimum capital requirements even under an extreme recession scenario, according to its annual stress test results. The test assumed unemployment would surge to 10%, commercial real estate prices would fall 39%, and home prices would drop 30%.
Despite those shocks, the Fed assessed that the large banks would still maintain enough capital to keep lending to households and businesses while absorbing total losses of more than $708 billion.
Michelle Bowman, the Fed's vice chair for supervision, said, "These results once again demonstrate the resilience of the U.S. banking system."
The Common Equity Tier 1, or CET1, ratio, a key capital measure, fell by 1.6 percentage points during the test, but it still remained well above the regulatory minimum. Estimated losses were largest in credit card lending at about $200 billion, followed by $160 billion in corporate lending and $75 billion in commercial real estate loans.
That suggests consumer delinquencies, corporate distress, and weakness in commercial real estate remain the biggest risks for the banking sector amid prolonged high interest rates and a slowing economy.
However, the market impact of this year's stress test is expected to be more limited than in previous years. In February, the Fed decided to overhaul the stress test framework and said it would not reflect this year's results in large banks' capital requirements until 2027. The move came in response to the financial industry’s calls for greater transparency and predictability in the evaluation process.




pride@fnnews.com Lee Byung-chul Reporter