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Michael Barr, vice chair of oversight at the Federal Reserve Board, testifies about recent bank failures during a hearing of the US Senate Committee on Banking, House of Representatives, and Urban Affairs on Capitol Hill in Washington, DC, May 18, 2023.
Saul Loeb | AFP | Getty Images
All 23 US banks are included in the annual Federal Reserve stress test Withstood a severe recession scenario while continuing to lend to consumers and businesses, the regulator said He said Wednesday.
The Fed said in a statement that banks were able to maintain minimum levels of capital, despite expected losses of $541 billion for the group, while continuing to provide credit to the economy in a hypothetical recession. launch.
The Fed’s annual stress test in the aftermath of the 2008 financial crisis, caused in part by irresponsible banks, began how much capital the industry could return to shareholders through buybacks and dividends. In this year’s exam, banks succumbed to a “severe global recession” with unemployment soaring 10%, commercial real estate values plummeting 40%, and housing prices falling 38%.
Banks have been the focus of intense scrutiny in the weeks following the collapse of three medium-sized banks earlier this year. But smaller banks avoid the Fed test entirely. The test examines giants incl c. B. Morgan Chase And Wells Fargointernational banks with large US operations, and the largest regional players incl PNC And the truth.
As a result, removing the stress test hurdle is not the “obvious” sign it was in previous years. Increased regulations on regional banks due to recent failures are still expected in the coming months, as well as tougher international standards that are likely to boost capital requirements for the country’s largest banks.
“Today’s results confirm that the banking system remains strong and resilient,” Michael Barr, vice president of oversight at the Fed, said in the release. “At the same time, this stress test is only one way to measure that strength. We must remain humble about how risks arise and continue our work to ensure banks are resilient to a range of economic scenarios, market shocks and other stresses.”
The group of banks witnessed a decrease in total capital levels from 12.4% to 10.1% during the hypothetical recession period. But this average masked the larger hits to equity – which provides a cushion for loan losses – seen in banks with greater exposure to commercial real estate and credit card loans.
Regional banks incl us the bankAnd the truthAnd Citizens And M&T Focus on the card One capital It had the lowest levels of equity in the exam, between 6% and 8%.
Banks are expected to reveal updated plans for buybacks and dividends on Friday after the close of regular trading. Given the uncertainty about upcoming regulation and the risk of an actual recession next year, analysts said banks are likely to be relatively conservative with their capital plans.
This story is evolving. . Please check back for updates
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