Bank Stress Test Results
Federal Reserve Stress Tests Show All 32 Banks Remain Resilient Amid Severe Downturn
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Key Points
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First Citizens recorded the lowest stress ratio of 6.7%, while Charles Schwab posted the highest at 32.2%, showing a wide dispersion in capital resilience among the 32 banks tested.
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Post-stress-test actions included several banks boosting dividends and buybacks: JPMorgan's quarterly dividend up to $1.65 and new buyback authorization; Goldman Sachs increasing its dividend to $5; Morgan Stanley raising its dividend 15% to $1.15 and reauthorizing a $20 billion buyback; State Street increasing its dividend by 10%; Wells Fargo lifting its Q3 dividend by 11% to $0.50.
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The Fed expanded the stress test to 32 banks this cycle, up from 22 banks evaluated in the previous cycle, broadening the scope of the assessment.
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The severely adverse scenario modeled a 39% decline in commercial real estate prices and a 30% decline in house prices, with unemployment at 10% and a notable GDP contraction, underscoring the severity of the modeled downturn.
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Some market observers criticized the cycle as potentially 'going through the motions' while regulators discuss Basel III Endgame reforms, and regulators emphasized that capital buffers would remain unchanged until 2027, with public feedback being incorporated to improve the stress test.
All 32 of the largest U.S. banks passed the Federal Reserve's annual stress test, the Fed announced on June 26, 2024. The banks absorbed a hypothetical $708 billion in losses and still stayed above minimum capital levels, according to Federal Reserve. The results show the banking system can keep lending even through a severe recession.
The test's "severely adverse" scenario included a 10% unemployment rate, a 39% drop in commercial real estate prices, and a 30% drop in home prices. Despite those shocks, the industry's key capital ratio — called the CET1 ratio — fell only from 12.8% to 11.2%, a drop of 1.6 percentage points, per Federal Reserve. That still left banks well above the regulatory floor.
Where the $708 Billion in Losses Came From
Credit cards accounted for the biggest chunk of projected losses — roughly $200 billion. Commercial and industrial loans added about $160 billion more. Commercial real estate, despite its steep 39% price drop in the scenario, contributed around $75 billion, according to The Epoch Times. Together, those three categories made up the bulk of the $708 billion total.
The scenario also included a 55% stock market drop and a significant GDP contraction. Michael Barr, the Fed's Vice Chair for Supervision, said the test "shows that under our hypothetical scenario, banks would face significant losses, but would still have more than enough capital to continue lending to households and businesses," per Freedom 96.9.
Charles Schwab Tops Rankings; First Citizens Scrapes By
The 32 banks showed wide differences in resilience. Charles Schwab posted the highest post-stress CET1 ratio at 32.2%. First Citizens landed at the bottom with just 6.7% — still above the regulatory minimum, but with far less cushion, according to Free Malaysia Today.
The Fed expanded the test to 32 banks this cycle, up from 22 in the previous round. That broader scope pulled in larger regional banks that had not faced this level of scrutiny before. The 2023 failures of Silicon Valley Bank and Signature Bank pushed regulators to widen the net, per Scotsman Guide.
Banks Rush to Boost Dividends and Buybacks After Results Drop
Once the Fed lifted restrictions on capital returns, the announcements came fast. JPMorgan Chase raised its quarterly dividend to $1.65 and authorized a new share buyback. Goldman Sachs lifted its dividend to $5 per share. Morgan Stanley raised its dividend 15% to $1.15 and reauthorized a $20 billion buyback program, according to Heads Topics.
Wells Fargo lifted its third-quarter dividend by 11% to $0.50 per share. State Street raised its dividend by 10%. These moves signal that bank executives feel confident in their capital positions — and want to reward shareholders after months of uncertainty over regulatory changes.
Capital Rules Stay Frozen Until 2027 Amid Basel Reform Debate
The Fed said it will not change capital requirements until at least 2027. That decision gives banks a clear runway while regulators finish updating the stress-test methodology. The freeze comes as the industry fights the "Basel III Endgame" proposals, which originally called for a 16% to 19% increase in capital for the biggest banks, per The Epoch Times.
Some critics say the tests are losing their edge. Market observers noted the cycle may be "going through the motions" while the bigger regulatory fight plays out. Consumer groups argued the scenario misses stagflation risks — where high interest rates and a shrinking economy hit banks at the same time — the very conditions that sank SVB in 2023, according to Scotsman Guide.
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