If the economic worst happens — the worst being defined as a deep recession in the United States, steep declines in home prices, and recessions in the euro area as well as Japan — 30 major banks in the U.S. would lose a total of $501 billion dollars over nine quarters, according to the latest round of stress testing from the Federal Reserve.
That’s compared with $355 billion in the slightly-less-scary “adverse” scenario laid out by the Fed. The central bank noted, as usual, that the “severely adverse” and slightly-less-scary “adverse” scenarios it tests are “not forecasts, but rather hypothetical scenarios designed to assess the strength of banking organizations and their resilience to an adverse economic environment.” The Fed released its actual economic forecasts on Wednesday, and sees moderate growth on the horizon.
This is the fourth year the Fed has done stress tests on the country’s biggest financial institutions. It looked at 30 institutions this year, up from 18 in previous years. Just one, the Salt Lake City-based Zions Bancorp, wouldn’t meet the Fed’s minimum standards for capital in a worst-case scenario.
“The largest banking institutions in the United States are collectively better positioned to continue to lend to households and businesses and to meet their financial commitments in an extremely severe economic downturn than they were five years ago,” the Fed said in a statement.