Federal Reserve Set To Release Annual Bank Stress Test Results: Here's What To Expect On Wednesday

In a move to ensure the resilience of the U.S. banking system, the Federal Reserve is set to release the results of its annual stress test on Wednesday.

The stress tests, a product of the Great Recession, are designed to determine if the nation’s largest banks can withstand a severe economic downturn. This year’s results are particularly significant, following the collapse of three U.S. banks that sent shockwaves through the global banking system.

Stress Test Scenario

Under this year’s scenario, the unemployment rate rises by 6.5 percentage points over the course of two years, a steeper rise compared to last year’s 5.8 percentage points. Home prices are expected to decline more sharply by 38%, versus last year’s 28.5% decline. Commercial real estate, a growing concern for banks, is assumed to plunge by 40% in prices.

Banking Crisis and Stress Tests

Despite the more severe scenarios, Francisco Covas, head of research at the Bank Policy Institute, believes all 23 banks undergoing the Fed’s stress tests will pass due to their strong capitalization, according to CNN. However, the adverse scenario is likely to result in much steeper loan losses for banks due to their commercial real estate exposure, leading the Fed to impose tougher capital requirements on some banks.

The results of the Federal Reserve’s stress tests, which are due at 4:30 p.m. EDT on Wednesday, may have an impact on the stocks of major US banks. These could include financial institutions such as:

1. JPMorgan Chase & Co. JPM
2. Bank of America Corp BAC
3. Citigroup Inc. C
4. Wells Fargo & Co. WFC
5. Goldman Sachs Group Inc. GS
6. Morgan Stanley MS

Also Read: Powell Leads Global Central Bankers’ Consensus On Inflation: More Rate Hikes Needed

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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