With the possible imminent recession, how would the US banks fare?
Based on the stress testing of the 34 largest US banks, they have enough capital to withstand a hypothetical severe recession.
It means the banks will be able to continue lending to consumers and businesses under economic stress.
𝘛𝘩𝘦 𝘚𝘤𝘦𝘯𝘢𝘳𝘪𝘰
This year’s stress scenario includes a severe global recession, with a period of heightened stress in commercial real estate and corporate debt markets (as seen in the pandemic).
The unemployment rate is supposed at 10%, an increase of 5.8%.
𝘛𝘩𝘦 𝘙𝘦𝘴𝘶𝘭𝘵
In the projected 9 quarters period:
A max 2.7% decline in the aggregate common equity tier 1 capital ratio.
An aggregated loss of $612 billion; 76% or $463 billion in loan loss.
Mortgage portfolio loss rate 1.3%, credit card 15.6%
Source: The Fed
👉 In recent months, business leaders weighed in on the economic prospect.
Jamie Dimon from JP Morgan in June: “That (economic) hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy.”
👉 In the upcoming quarterly financial release
It is worth watching how banks adjust their reserves - a quantitative assessment of the recession severity.
Further reading:
Comments