Fed Stress Test Shows All Major U.S. Banks Clear Capital Hurdles — Evening Brief – 06.30.25
All 22 large banks subjected to the Federal Reserve’s 2025 stress test remained comfortably above minimum common equity tier 1 (CET1) capital requirements, even under a severe global recession scenario that projected more than $550 billion in total hypothetical losses, the Fed said Friday.
“Large banks remain well capitalized and resilient to a range of severe outcomes,” said Fed Vice Chair for Supervision Michelle Bowman, underscoring confidence in the banking sector’s stability. The stress test modeled steep declines including a 30% drop in commercial real estate prices, a 33% fall in residential housing prices, and an unemployment rate surging to a peak of 10%—a sharp shock meant to probe the limits of bank balance sheets.
Collectively, banks’ aggregate CET1 capital ratio fell by 1.8 percentage points under the scenario, staying well above the 4.5% regulatory minimum for institutions with more than $100 billion in assets. The Fed also noted that under its proposed two-year averaging of stress test results—a change aimed at smoothing swings in capital requirements—aggregate CET1 would have declined by a steeper 2.3 percentage points. Bowman urged the Fed to finalize that rule to provide banks more predictability in capital planning.
This year’s hypothetical loss drivers highlight where vulnerabilities lie: about $158 billion in projected credit card losses, $124 billion in commercial and industrial loan losses, and $52 billion in commercial real estate loan losses. However, updated measurement methods, a milder macroeconomic backdrop compared to some prior years, and stronger projected net revenues from trading and core banking helped limit the capital drawdown.
Top global systemically important banks (GSIBs) remain robust even after the modeled downturn. JPMorgan Chase reported a post-stress CET1 ratio of 15.8%, Bank of America at 10.7%, Citigroup at 12.5%, Goldman Sachs at 16.3%, Morgan Stanley at 15.9%, and Wells Fargo at 10.4%.
The annual stress test plays a pivotal role in determining how much profit banks can distribute to shareholders via dividends and share buybacks, balancing the need to return capital against the need for financial resilience. The largest banks are expected to announce updated capital return plans this week, with investors watching closely for any adjustments in payout ratios amid still-elevated macro risks and regulatory recalibrations.