Fed says all 32 large banks pass annual stress test

The Federal Reserve announced on Wednesday that all 32 of the nation's largest banks passed its annual stress test, demonstrating their ability to withstand a severe hypothetical recession while continuing to lend. The results, which were released on June 24, triggered immediate announcements from several major institutions to increase dividends and share buybacks.

The central bank's exam, a requirement under the Dodd-Frank Act enacted after the 2008 financial crisis, simulated a severe global recession. The scenario included a 4.6 percent decline in real GDP, a peak unemployment rate of 10 percent, a 30 percent drop in house prices, and a 39 percent decline in commercial real estate prices. The stock market was also modeled to plunge by 58 percent.

Despite these extreme conditions, the banks collectively would absorb over $708 billion in projected loan losses. Their aggregate capital ratio would decline by only 1.6 percentage points, from 12.8 percent to 11.2 percent, remaining well above the minimum regulatory requirement of 4.5 percent plus additional buffers. The Fed stated the results confirm that large banks are well positioned to weather a severe recession.