Fed Stress Tests Confirm Banks Could Continue Lending During a ‘Severe Recession’

Large banks continued to keep strong capital levels under a theoretical extreme worldwide economic downturn and considerable tension in industrial property and business financial obligation markets, according to the outcomes of Dodd-Frank Act-mandated tension tests, the Federal Reserve stated the other day.

“Today’s stress test results from the Federal Reserve show that the nation’s largest banks remain well positioned to absorb a range of potential economic shocks while continuing to support their customers, clients and communities,” stated ABA President and CEO Rob Nichols. “The industry’s strong balance sheets and high capital levels ensure banks can make the loans that drive our economy even if they face substantial headwinds.”

The tension test included a situation where joblessness increases by 5.75 portion points, surging to 10% and gdp falls “commensurately,” together with an almost 40% decrease in CRE rates and a 55% decrease in stock rates. Under the circumstance, capital ratios at the getting involved banks would decrease to a minimum 9.7%, which is still more than double their minimum requirements.

Results of these tension tests are utilized to assist figure out private bank capital requirements.


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