After one year of the collapse of the three largest banks in US history, the Federal Reserve (Fed) has confirmed that the largest bank in the United States has enough capital to withstand a highly stressful situation.
According to the Fed’s annual stress test report, the 31 largest banks in the country can withstand losses of approximately $68.5 billion from credit card debt, commercial loans, and commercial real estate.
The two-year simulation predicted scenarios such as a 55% stock market crash, a 40% decline in commercial real estate values, and an unemployment rate of 10%.
Although all the banks on the list have sufficient capital to withstand financial turmoil, the Fed pointed out that the risks on the banks’ balance sheets have increased this year. The increased risks are due to an increase in credit card balances, tightening credit limits, and an increase in the risk of corporate loan portfolios.
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According to a key indicator from the Federal Reserve, the US inflation rate has dropped to 2.6%.
“Although the severity of this year’s stress test is similar to last year’s, higher balance sheet risks and higher costs have resulted in higher losses,” stated the Federal Reserve.
They also mentioned that the purpose of the test is to ensure that banks have enough capital to absorb losses in extremely stressful situations, and the results indicate that they have indeed achieved this.
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