The Federal Reserve announced Thursday that the biggest U.S. banks could easily withstand a severe recession, a milestone for the once-beleaguered industry.
The Fed, in releasing the results of its annual stress test, said all 23 institutions in the 2021 exam remained “well above” minimum required capital levels during a hypothetical economic downturn. Bank shares popped after the release; the KBW Bank Index rose 1.5% at 5 p.m.
That scenario included a “severe global recession” that hits commercial real estate and corporate debt holders and peaks at 10.8% unemployment and a 55% drop in the stock market, the central bank said. While the industry would post $474 billion in losses, loss-cushioning capital would still be more than double the minimum required levels, the Fed said.