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Fed releases scenarios for this year's bank stress tests

2024-02-18

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The U.S. Federal Reserve recently released hypothetical adverse scenarios for this year’s bank stress test. This is the first annual test since the collapse of several regional U.S. banks in March 2023.

According to news released by the Federal Reserve, this year's core test will examine whether banks have sufficient funds to provide loans to households and businesses when the unemployment rate rises by 6.5 percentage points to a peak of 10%. The Fed believes that a sharp surge in unemployment will be accompanied by severe market volatility and other problems, including a 36% drop in home prices and a 40% drop in commercial real estate prices.

This year's test will cover 32 banks, some with assets as low as $100 billion, as the collapse of Silicon Valley Bank and Signature Bank last March sparked concerns about the broader banking system. The Federal Reserve will announce the results of its stress test in June this year.

The Federal Reserve began conducting annual stress tests on large financial institutions in 2009 to ensure that they still have sufficient capital to maintain operations when facing adverse conditions such as economic recession.

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Fed releases scenarios for this year's bank stress tests

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