The US Federal Reserve Board published a FEDS Note finding that conventional top-down stress models estimated across all banks may materially overstate capital losses for regional banks with USD 10 billion to USD 100 billion in assets. A version of the Forward-Looking Analysis of Risk Events model estimated specifically for regional banks generally produced lower forecast errors and showed that these firms are less sensitive to broad macroeconomic and financial stress than larger banks. Under the 2024 severely adverse scenario, the regional-bank model projected more stable pre-provision net revenue, lower aggregate net charge-offs and a substantially smaller decline in the Common Equity Tier 1 ratio. The maximum difference in capital projections was nearly 1 percentage point, with revenue accounting for about two-thirds of the gap. However, regional banks remain more exposed to disruptions in low-cost deposit funding and deterioration in certain commercial real estate segments, particularly construction and multifamily lending. The model also does not capture shocks specific to individual regions.
Federal Reserve Board2026-08-04
US Federal Reserve Board analysis finds all-bank stress models may overstate regional bank capital losses
US Federal Reserve Board staff analysis found that all-bank top-down stress models may materially overstate capital losses at banks with USD 10 billion to USD 100 billion in assets. A regional-bank model projected a Common Equity Tier 1 ratio decline that was smaller by as much as nearly 1 percentage point, although vulnerabilities to low-cost deposit funding and certain commercial real estate sectors remain.