The nation’s largest banks remain well capitalized and capable of continuing to lend through a severe economic downturn, according to the Federal Reserve’s 2026 annual bank stress test, which found all 32 institutions maintained capital levels above regulatory minimums despite absorbing more than $708 billion in projected loan losses.
The hypothetical scenario modeled a deep global recession featuring a 39% decline in commercial real estate prices, a 30% drop in home prices, unemployment rising to 10%, and a sharp contraction in economic activity. Under those assumptions, banks’ aggregate common equity tier 1 (CET1) capital ratio declined by 1.6 percentage points but remained comfortably above minimum requirements.
“Today’s results underscore the strength of the banking system,” said Federal Reserve Vice Chair for Supervision Michelle Bowman. She added that the Fed is working to improve the transparency and accountability of the stress-testing process and will incorporate public feedback into future models.
The central bank noted that this year’s results will not affect large-bank capital requirements. Existing requirements will remain in place through 2027, when updated stress-testing models reflecting public input are scheduled to take effect.
The Fed attributed the projected capital decline primarily to higher loan losses resulting from larger loan balances and more severe assumptions for certain asset classes, as well as lower unrealized gains on securities due to smaller hypothetical declines in interest rates. Those pressures were partially offset by stronger projected net interest income, reflecting improved bank earnings and a higher interest-rate environment.
Credit card lending represented the largest source of projected losses at approximately $200 billion, followed by $160 billion in commercial and industrial loan losses and roughly $75 billion tied to commercial real estate exposure.
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