Large US banks can endure losses, severe recession, Fed stress test finds

By Ovunc Kutlu

ISTANBUL (AA) - Large banks in the US can endure losses as they are well positioned to weather a severe recession and stay above minimum capital requirements, the Federal Reserve Board's annual bank stress test showed Wednesday.

"This year's stress test shows that large banks have sufficient capital to withstand a highly stressful scenario and meet their minimum capital ratios," Vice Chair for Supervision Michael S. Barr said in a statement.

"The goal of our test is to help to ensure that banks have enough capital to absorb losses in a highly stressful scenario. This test shows that they do."

All 31 banks tested remained above their minimum capital requirements during a hypothetical recession in the US, after they absorbed total hypothetical losses of nearly $685 billion.

In this year's hypothetical scenario, there was a severe global recession with a 40% decline in commercial real estate prices, a substantial increase in office vacancies, and a 36% decrease in house prices, in addition to the unemployment rate rising around 6.5 percentage points to a peak of 10%.