The largest U.S. banks have enough capital to continue lending to households and businesses through even the most treacherous economic conditions, the Federal Reserve said after running its annual stress test.
The 32 banks subjected to a series of hypothetical adverse scenarios -- featuring, at worst, a 10% unemployment rate, double-digit real estate price declines, and plunging stocks -- can absorb some $708 billion in loan losses and still function as lenders, the Fed said Wednesday.
Those results "underscore the strength of the banking system," Fed Vice Chair for Supervision Michelle Bowman said in a statement.
The results should bode well for both investors' and borrowers' confidence in the financial system. Regulators introduced the annual stress tests after the 2008-09 financial crisis as a way to gauge banks' health and pinpoint areas of risk that stressful economic conditions might expose.
As the Fed rewires the test process as part of the Trump administration's efforts to pull back on bank regulation, however, the results this year won't immediately influence banks' capital requirements.
That marks a departure from past tests; the Fed is waiting until 2027 to calculate a key piece of how much capital banks must hold.
JPMorgan Chase, Bank of America, Citigroup, PNC Financial Services Group, and KeyCorp were among the firms subjected to regulators' tests this year. While the way they fared won't directly impact their capital requirements, investors will still parse through the results for signals about how the Fed may determine future capital buffers, Wolfe Research analyst Steven Chubak wrote to clients on Monday.
Banks often announce new buyback programs and dividend plans soon after the Fed releases results each year. That's because banks can better evaluate plans to return excess cash to shareholders after regulators signal how much capital they need to set aside first.
Banks may still announce those plans. But they will be based on 2025 stress capital buffers, or SCBs, which refer to the capital lenders must hold above required regulatory minimums.
The Fed has opted to freeze those levels until it can incorporate input from banks into next year's stress test models. Regulators appointed by President Donald Trump are working to overhaul the way they run stress tests after years of pressure by bank lobbyists to do so.
Bowman said this past February that her goal in opening up the stress-testing framework to public comment is to "reduce volatility, balance model robustness with transparency, and ensure that significant future changes receive public input."
That decision drew criticism from some industry watchdogs and Fed governor Michael Barr, who preceded Bowman. Barr has pushed for tighter supervision while Bowman, a former community banker and state bank commissioner, has advocated for a more hands-off approach.
"I would rather we calculate stress capital buffers using the 2026 stress test reflecting the most recent risk profiles of banks subject to the stress test," Barr said in February, adding that the Fed had implemented changes to the test's model that "reduce the severity of the stress test."
"Weaker stress tests undermine the stress test's credibility," he said.
Shares of banks large and small have risen this year as investors bet on a period of looser regulation further boosting banks' profits. On Wednesday, the State Street SPDR S&P Bank ETF hit a record high while its regional-banking counterpart hit its highest level in four years.
Write to Rebecca Ungarino at rebecca.ungarino@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 24, 2026 16:00 ET (20:00 GMT)
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