Fed Finds Large Banks Can Manage "Severely Adverse Stress"

In its 2026 bank "Stress Test Results," the Federal Reserve found that the 32 large banks would maintain enough capital to absorb nearly $708 billion in losses through a severe hypothetical recession and still be able to continue lending.

The 32 banks that were tested collectively absorbed the shock without catastrophic failure - aggregate Common Equity Tier 1 (the highest quality capital a bank holds) fell from 12.8% to a minimum of 11.2% before partially recovering. The Federal Reserve found projected capital fell mainly because of larger than expected loan losses. The figure of $708 billion was due almost entirely to loan losses ($625B, or 89%). Credit cards alone accounted for nearly a third of all losses - reflecting their higher risk profile and the consumer stress built into the severely adverse scenario. Commercial loan losses (48%) outpaced consumer (41%), though both were significant. The Fed said that banks were carrying about 10 percent more in loans than a year earlier.

Despite those losses, banks collectively generated $719B in pre-provision net revenue ("PPNR"), which nearly offset them - resulting in an aggregate pre-tax net income of +$1.2B. However, 17 of the 32 banks individually ran at a pre-tax loss, with the worst reaching −3.6% of assets.

Operational risk was a notably large embedded cost at $211B - covering fraud, litigation, and systems failures (a number that is incorporated into PPNR, rather than shown as a separate loss line.)