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Banking Sector · Federal Reserve · Financial Stability · Stress Tests
All 22 major banks passed the Federal Reserve's annual stress tests, absorbing $550 billion in theoretical losses, but the central bank acknowledged the 2025 tests were notably less vigorous than previous years, raising questions about the true resilience of the financial system.
The Fed's scenario for 2025 included less severe economic contractions, smaller rises in unemployment, and less significant drops in commercial real estate and housing prices compared to the 2024 tests. This reduced the theoretical damage to bank balance sheets.
Michelle Bowman, the Fed's vice chair for supervision, stated that large banks remain well capitalized and resilient. The central bank justified the less vigorous approach by citing a weakened global economy and "unintended volatility" in past results, planning to seek public comment for future adjustments.
Notably, the tests did not heavily scrutinize exposure to private equity or the rapidly growing $2 trillion private credit market, despite the Federal Reserve Bank of Boston identifying private credit as a potential systemic risk. An "exploratory analysis" of private credit, separate from the official test, concluded banks were "generally well-positioned." Passing these tests allows banks like JPMorgan Chase, Citigroup, Bank of America, Morgan Stanley, and Goldman Sachs to issue dividends and buy back shares.
