FRB Finds Large Banks Can Absorb Big Losses

Based on the most recent stress tests, the Federal Reserve Board ("FRB") concluded that large banks had enough capital to continue to lend to households and businesses, even if they were required to absorb more than $540 billion in losses.

In its report on 2023 Federal Reserve Stress Test Results, the FRB found that banks’ post-stress capital ratios were "well above" the required minimum levels. The FRB reported that the largest banks had "large unrealized losses on securities portfolios" but projected that the securities values would not be negatively impacted by rising interest rates. Under its stress tests, the FRB projected that significant portions of the potential losses would result from loans against commercial real estate and residential property as well as losses on credit card debt.

The FRB noted the "need for humility when assessing large bank resilience," in light of the recent bank failures. The FRB stated that this year’s analysis of banks’ ability to endure financial stress incorporated a "wider range of risks." The FRB added that its stress tests will continue to evolve in accordance with "today’s complex and interconnected financial system."