By Ken Sweet
NEW YORK (AP) – All major banks have passed the annual “stress test” of the financial system’s federal reserve system, the central bank said Friday, but said the tests conducted by the central bank have been less active than in the past few years.
All 22 banks tested this year were above the minimum threshold to keep the solvent going, the Fed said they were still operating despite absorbing the theoretical loss of around $550 billion. The Fed scenario will see fewer unemployment rates, lower severe economic contractions, lower severe economic contractions, lower commercial property prices, lower home prices, and more than those tested in 2024.
All of these are not harmful, but all simulated means that there is less damage to the balance sheets of these banks and less likely to fail. The bank was expected to pass the 2025 test, as the bank passed the 2024 test.
“Large banks are still well capitalized and resilient to a variety of serious outcomes,” said Michelle Bowman, vice-chairman of the bank, in a statement. President Trump’s appointee, Bowman, became the Federal Reserve vice-chairman earlier this month.
It is not clear why the Fed chose a less active test this year. In a statement, the bank said previous tests showed “unintended volatility” in the results and plans to seek public and industry comments to coordinate future stress tests. The Fed also chose not to strongly test banks for exposure to private equity assets, claiming that private equity assets are usually held for the long term and are not sold in times of distress.
The Fed also did not test the bank’s exposure to private credit, a $2 trillion asset class that has been observed to be growing surprisingly rapidly by the Fed researchers themselves. The Federal Reserve Bank of Boston recently noted that private credit could be a systematic risk to the financial system under a significant disadvantageous scenario. This is exactly what a stress test should test.
This year’s tests did not include any wording or phrases in the Fed press release, reports, or reports or methodologies regarding the testing or measurement of private debt.
The Fed’s “stress test” was created after the 2008 financial crisis as a way to assess whether the country’s “too bad for failure” banks can withstand another financial crisis like what happened nearly 20 years ago. Tests are effectively academic exercises, and the Fed simulates a global economy scenario and measures what the scenario does to make the balance sheet a bank.
The 22 banks tested are the biggest names in the business, including JPMorgan Chase, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs.
In this year’s hypothetical scenario, a massive global recession would have resulted in a 30% drop in commercial property prices and a 33% drop in home prices. The unemployment rate rose to 10% and the stock price fell 50%. In 2024, the hypothetical scenario was a 40% drop in commercial property prices, a 55% drop in stock prices, and a 36% drop in home prices.
Once the results are passed, the major banks are allowed to issue dividends to shareholders and buy back the shares and return the revenue to investors. These dividend plans will be announced next week.
Original issue: June 27, 2025, 4:38pm EDT
