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  • Frank Tian

2022 US Banks Stress Testing Result

Updated: Dec 19, 2022

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:

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