Major banks in the United States pass the federal stress test

WASHINGTON – The largest US banks are still resilient in the face of a severe economic and financial crisis, according to the Federal Reserve. The US central bank announced the results of its annual stress test. Vice President of Banking Supervision Michael Barr said that the losses that lenders would incur in this year's test were greater than last year.

Through stress testing, the Fed checks whether the largest banks in the United States have sufficient capital after periods of major economic setbacks. The results also determine the minimum buffers that banks should maintain.

The crisis scenarios the Fed operates with vary each year. This year, the regulator is examining, among other things, the impact of an increase in unemployment of more than 6 percentage points on banks' balance sheets. The central bank is also investigating the consequences for banks if commercial property prices fall by 40 percent. For banks with a large trading arm, the Fed also considers how the shock will impact international financial markets.

31 banks

This year, 31 banks were tested. This is much more than last year, when there were 24 banks. This is because every two years banks with a total balance sheet between $100 billion and $250 billion are included.

“While the severity of this year’s stress test is similar to last year’s, the test resulted in larger losses due to riskier balance sheets and higher costs,” Barr said, adding that all banks are well capitalized.

Credit cards and loans

The higher risks relate primarily to customers with credit cards and business loans. Additionally, higher costs mean less profit from commissions, for example, which makes it more difficult to offset losses, according to the Federal Reserve.

An important indicator for banks, the CET1 capital ratio, tested this year at 9.9 percent. That was 12.7 percent a year ago. The minimum required is 4.5 percent.

The annual stress test was implemented in the wake of the major financial crisis that led to major disruptions to the survival of banks between 2007 and 2009. The Fed wanted to restore confidence by regularly checking whether reserves were strong enough.