The Federal Reserve Board published results of its annual supervisory stress test, concluding that the 22 banks assessed would remain above their minimum common equity tier 1 (CET1) capital requirements under a hypothetical severe recession and continue lending to households and businesses. Under the scenario, the aggregate CET1 capital ratio decline is 1.8 percentage points after more than USD 550 billion in projected losses, including nearly USD 158 billion in credit card losses, USD 124 billion in commercial and industrial loan losses, and USD 52 billion in commercial real estate losses. The scenario features a severe global recession with a 30 percent decline in commercial real estate prices and a 33 percent decline in house prices, with unemployment rising nearly 5.9 percentage points to a peak of 10 percent. The Board attributed the smaller aggregate decline versus recent years to a less severe countercyclical scenario, lower private equity losses following an adjustment to how those exposures are measured, and higher net revenue reflecting improved bank performance and atypical trading positions under the supervisory framework; it also released corrected 2024 stress test results and capital requirements due to modest projection errors that did not change the aggregate post-stress capital decline for 2024. The Board noted that unintended volatility in its stress test models contributed to this year’s results and said it intends to address this when it discloses and seeks public comment on the models and its scenario design framework later in 2025. It also highlighted its April proposal to average stress test results over two consecutive years to reduce volatility in stress capital requirements, which, if finalized as proposed, would average 2025 results with 2024 and produce an aggregate capital decline of 2.3 percentage points.

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