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- All 32 major US banks passed the Fed’s annual stress test, withstanding over $708 billion in hypothetical losses while remaining above minimum capital requirements.
- This year’s results will not affect how much capital banks must hold, as the Fed pauses buffer updates until 2027, prompting JP Morgan, Goldman Sachs and others to move quickly on dividend increases.
The Federal Reserve has confirmed that America’s largest banks are still in strong financial health, capable of weathering a severe economic downturn without breaching minimum capital requirements.
The Fed released its annual stress test results on Wednesday, covering 32 of the nation’s biggest lenders and offering the clearest picture yet of how the banking system would likely hold up in a crisis.
All 32 Banks Pass the Test
Every bank that participated in this year’s stress test has passed with flying colors.
The Fed’s scenario was designed to be severe, modeling a global recession in which real estate prices fall by 39%, home prices drop by 30%, unemployment rises to 10%, and the stock market crashes by nearly 58%. ⁽¹⁾
In the scenario, GDP shows a 4.6% contraction and financial markets face widespread turmoil.
Despite these conditions, all 32 institutions, including Wall Street giants such as JP Morgan, Bank of America, Goldman Sachs and Citigroup, maintained capital levels above the minimum requirements. ⁽²⁾
The group’s common equity tier 1 capital ratio, the key measure of financial strength, fell from 12.8% to a low of 11.2% during the simulation before recovering to 12.7%. The required minimum stands at 4.5%, meaning the banks remained well clear of the threshold even under the most adverse conditions. ⁽³⁾
Where the Losses Came From
In total, the banks absorbed more than $708 billion in hypothetical losses across the simulation. Credit card losses accounted for the largest share, reaching approximately $203 billion.
Losses from commercial and industrial loans came to around $158 billion, while commercial real estate contributed $77 billion. ⁽⁴⁾
Three factors shaped the final result, with loan losses coming in higher than in previous years due to larger loan balances and a tougher stress scenario for some variables. Banks also faced lower projected unrealized gains on securities because interest rates declined slowly during the hypothetical scenario. ⁽⁵⁾
However, higher net interest income helped reduce losses, as banks benefited from their financial performance and a smaller drop in interest rates compared to previous tests.
Capital Buffers Will Not Change Until 2027
One major development this year was the Fed’s announcement in February that it would pause updates to banks’ stress capital buffer requirements until 2027. These buffers are additional capital that banks must hold based on their stress test performance, meaning this year’s results will have no impact on how much capital the 32 banks are required to hold. ⁽⁶⁾
The pause comes as regulators review how they design stress tests, following years of criticism from the banking industry.
Banks have argued for years that the tests lack transparency and rely on opaque, subjective judgments. The Fed has said it will collect public feedback and revise its methodology before the 2027 test, at which point capital requirements will be updated.
Banks Move to Return Capital to Shareholders
With the results confirming their financial strength, several major banks wasted no time in announcing plans to reward shareholders.
JP Morgan said it would raise its quarterly dividend to $1.65 per share and authorized a new share buyback program. Goldman Sachs raised its dividend by 25% to $5 per share, while Morgan Stanley lifted its dividend by 15% to $1.15 per share and reauthorized a $20 billion buyback program. ⁽⁷⁾
Fed Vice Chair for Supervision Michelle Bowman welcomed the results. “Today’s results underscore the strength of the banking system,” she said, adding that efforts to improve transparency in the stress-testing process would help build broader confidence in the framework going forward. ⁽⁸⁾
