Latest news with #MichelleBowman
Washington Post
16 hours ago
- Business
- Washington Post
Big banks all pass the Federal Reserve's stress tests, but the tests were less vigorous this year
NEW YORK — All the major banks passed the Federal Reserve's annual 'stress tests' of the financial system, the central bank said Friday, but the test conducted by the central bank was notably less vigorous than it had been in previous years. All 22 banks tested this year would have remained solvent and above the minimum thresholds to continue to operate, the Fed said, despite absorbing roughly $550 billion in theoretical losses. In the Fed's scenario, there would be less of a rise in unemployment, less of a severe economic contraction, less of a drop in commercial real estate prices, less of a drop in housing prices, among other metrics compared to what they tested in 2024. All of these less harmful, but simulated, drops mean there would be less damage to these banks' balance sheets and less risk of these banks of potentially failing. Since the banks passed the 2024 tests, it was expected that the banks would pass the 2025 tests. 'Large banks remain well capitalized and resilient to a range of severe outcomes,' said Michelle Bowman, the bank's vice chair for supervision, in a statement. An appointee of President Trump, Bowman became the Fed's vice chair of supervision earlier this month. The Fed said it went with a less vigorous test because the global economy has weakened since last year, and therefore the test tends to weaken. Further, the bank said previous tests had shown 'unintended volatility' in the results and it plans to seek public and industry comment to adjust stress tests in future years. The Fed also chose to not test the banks as heavily on their exposure to private equity assets, arguing that private equity assets are typically held for the long term and are not typically sold at times of distress. The Fed also didn't test for any bank exposure to private credit, a $2 trillion asset class that even Fed researchers themselves have observed to be growing alarmingly quickly . The Federal Reserve Bank of Boston recently pointed out that private credit could be a systemic risk to the financial system under a severe adverse scenario, which is exactly what the stress tests are supposed to test for. There was no wording or phrasing in the Fed's press release, reports or methodology about testing or measuring private credit or private debt in this year's test. The Fed did do what it calls an 'exploratory analysis' of the private credit market, which concluded the major banks were 'generally well-positioned' to withstand losses in the private credit market. That analysis was entirely separate and not part of this year's test. The Fed's 'stress tests' were created after the 2008 financial crisis as a way to gauge whether the nation's 'too big to fail' banks could withstand another financial crisis like the once that happened nearly 20 years ago. The tests are effectively an academic exercise, where the Fed simulates a scenario in the global economy and measures what that scenario would do to bank balance sheets. The 22 banks that are tested are the biggest names in the business, such as JPMorgan Chase, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs, which hold hundreds of billions of dollars in assets and have wide-ranging businesses that touch every part of the U.S. and global economy. Under this year's hypothetical scenario, a major global recession would have caused a 30% decline in commercial real estate prices and a 33% decline in housing prices. The unemployment rate would rise to 10% and stock prices would fall 50%. In 2024, the hypothetical scenario was a 40% decline in commercial real estate prices, a 55% decline in stock prices and a 36% decline in housing prices. With their passing grades, the major banks will be allowed to issue dividends to shareholders and buy back shares of stock to return proceeds to investors. Those dividend plans will be announced next week.
The Independent
17 hours ago
- Business
- The Independent
Big banks all pass the Federal Reserve's stress tests, but the tests were less vigorous this year
All the major banks passed the Federal Reserve 's annual 'stress tests" of the financial system, the central bank said Friday, but the test conducted by the central bank was notably less vigorous than it had been in previous years. All 22 banks tested this year would have remained solvent and above the minimum thresholds to continue to operate, the Fed said, despite absorbing roughly $550 billion in theoretical losses. In the Fed's scenario, there would be less of a rise in unemployment, less of a severe economic contraction, less of a drop in commercial real estate prices, less of a drop in housing prices, among other metrics compared to what they tested in 2024. All of these less harmful, but simulated, drops mean there would be less damage to these banks' balance sheets and less risk of these banks of potentially failing. Since the banks passed the 2024 tests, it was expected that the banks would pass the 2025 tests. 'Large banks remain well capitalized and resilient to a range of severe outcomes,' said Michelle Bowman, the bank's vice chair for supervision, in a statement. An appointee of President Trump, Bowman became the Fed's vice chair of supervision earlier this month. It's not clear why the Fed chose to go with a less vigorous test this year. In a statement, the bank said previous tests had shown 'unintended volatility' in the results and it plans to seek public and industry comment to adjust stress tests in future years. The Fed also chose to not test the banks as heavily on their exposure to private equity assets, arguing that private equity assets are typically held for the long term and are not typically sold at times of distress. The Fed also didn't test for any bank exposure to private credit, a $2 trillion asset class that even Fed researchers themselves have observed to be growing alarmingly quickly. The Federal Reserve Bank of Boston recently pointed out that private credit could be a systemic risk to the financial system under a severe adverse scenario, which is exactly what the stress tests are supposed to test for. There was no wording or phrasing in the Fed's press release, reports or methodology about testing or measuring private credit or private debt in this year's test. The Fed's 'stress tests' were created after the 2008 financial crisis as a way to gauge whether the nation's 'too big to fail' banks could withstand another financial crisis like the once that happened nearly 20 years ago. The tests are effectively an academic exercise, where the Fed simulates a scenario in the global economy and measures what that scenario would do to bank balance sheets. The 22 banks that are tested are the biggest names in the business, such as JPMorgan Chase, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs, which hold hundreds of billions of dollars in assets and have wide-ranging businesses that touch every part of the U.S. and global economy. Under this year's hypothetical scenario, a major global recession would have caused a 30% decline in commercial real estate prices and a 33% decline in housing prices. The unemployment rate would rise to 10% and stock prices would fall 50%. In 2024, the hypothetical scenario was a 40% decline in commercial real estate prices, a 55% decline in stock prices and a 36% decline in housing prices. With their passing grades, the major banks will be allowed to issue dividends to shareholders and buy back shares of stock to return proceeds to investors. Those dividend plans will be announced next week.
Al Arabiya
17 hours ago
- Business
- Al Arabiya
Big banks all pass the Federal Reserve's stress tests, but the tests were less vigorous this year
All the major banks passed the Federal Reserve's annual stress tests of the financial system, the central bank said Friday, but the test conducted by the central bank was notably less vigorous than it had been in previous years. All 22 banks tested this year would have remained solvent and above the minimum thresholds to continue to operate, the Fed said, despite absorbing roughly $550 billion in theoretical losses. In the Fed's scenario, there would be less of a rise in unemployment, less of a severe economic contraction, less of a drop in commercial real estate prices, less of a drop in housing prices, among other metrics, compared to what they tested in 2024. All of these less harmful but simulated drops mean there would be less damage to these banks' balance sheets and less risk of these banks potentially failing. Since the banks passed the 2024 tests, it was expected that the banks would pass the 2025 tests. 'Large banks remain well capitalized and resilient to a range of severe outcomes,' said Michelle Bowman, the bank's vice chair for supervision, in a statement. An appointee of President Trump, Bowman became the Fed's vice chair of supervision earlier this month. It's not clear why the Fed chose to go with a less vigorous test this year. In a statement, the bank said previous tests had shown unintended volatility in the results, and it plans to seek public and industry comment to adjust stress tests in future years. The Fed also chose not to test the banks as heavily on their exposure to private equity assets, arguing that private equity assets are typically held for the long term and are not typically sold at times of distress. The Fed also didn't test for any bank exposure to private credit, a $2 trillion asset class that even Fed researchers themselves have observed to be growing alarmingly quickly. The Federal Reserve Bank of Boston recently pointed out that private credit could be a systemic risk to the financial system under a severe adverse scenario, which is exactly what the stress tests are supposed to test for. There was no wording or phrasing in the Fed's press release, reports, or methodology about testing or measuring private credit or private debt in this year's test. The Fed's stress tests were created after the 2008 financial crisis as a way to gauge whether the nation's 'too big to fail' banks could withstand another financial crisis like the one that happened nearly 20 years ago. The tests are effectively an academic exercise where the Fed simulates a scenario in the global economy and measures what that scenario would do to bank balance sheets. The 22 banks that are tested are the biggest names in the business, such as JPMorgan Chase, Citigroup, Bank of America, Morgan Stanley, and Goldman Sachs, which hold hundreds of billions of dollars in assets and have wide-ranging businesses that touch every part of the US and global economy. Under this year's hypothetical scenario, a major global recession would have caused a 30 percent decline in commercial real estate prices and a 33 percent decline in housing prices. The unemployment rate would rise to 10 percent, and stock prices would fall 50 percent. In 2024, the hypothetical scenario was a 40 percent decline in commercial real estate prices, a 55 percent decline in stock prices, and a 36 percent decline in housing prices. With their passing grades, the major banks will be allowed to issue dividends to shareholders and buy back shares of stock to return proceeds to investors. Those dividend plans will be announced next week.
Yahoo
17 hours ago
- Business
- Yahoo
Fed says banks resilient in hypothetical downturn, clearing way for capital plans
By Pete Schroeder WASHINGTON (Reuters) -Twenty-two of the largest banks in the U.S. are well-positioned to weather a hypothetical severe economic downturn and continue lending, with firms maintaining robust capital levels even after suffering hundreds of billions of dollars in losses, the Federal Reserve reported on Friday. The results of the U.S. central bank's annual "stress test" of large banks' finances found firms remain resilient in the face of a potential recession, a spike in unemployment, and market turmoil. In aggregate, the test found the banks suffered losses of more than $550 billion in the Fed's scenario, which drove down their capital levels by 1.8%. But even then, firms retained more than twice the minimum level of capital required by regulations. On average, the test found banks retained an average 11.6% ratio of their common equity tier 1 capital, well above the 4.5% minimum required. "Large banks remain well-capitalized and resilient to a range of severe outcomes," Fed Vice Chair for Supervision Michelle Bowman said in a statement. The results of the annual exam are significant for banks as their performance in the exercise sets the "stress capital buffer" they must hold against potential losses. Those buffers typically are finalized in August, according to Fed officials. The relatively clean bill of health from the central bank clears the way for the firms to announce capital plans to shareholders in the coming days, including stock buybacks and dividends. Banks will be able to announce any capital plans as early as Tuesday after U.S. markets close, Fed officials said. Banks generally performed better in the 2025 test than in the 2024 version, in part because the Fed's test this year was less severe. The stress test runs counter to the overall U.S. economy, so a slightly weaker economy leading up to the test resulted in a slightly less vigorous scenario. The 2025 test involved a severe global recession that included a 30% decline in commercial real estate prices and a 33% decline in home prices. The unemployment rate spiked 5.9 percentage points to 10% under the test. The largest global banks all posted stronger results than in 2024, led by JPMorgan Chase, which retained a capital ratio of 14.2% under the test. The nation's six largest banks all retained double-digit capital ratios under the test. The bank that posted the highest capital ratio under the test was Charles Schwab at 32.7%. BMO's U.S. operations posted the lowest capital ratio at 7.8%. STRESS TEST OVERHAUL The stress test results were released during a transitory period for the exercise, which was established following the 2008 financial crisis to probe big banks' resilience. The Fed announced at the end of 2024 that it would be pursuing major changes to how the test is conducted, largely responding to industry complaints that the exercise is opaque and subjective. Among the changes, the Fed proposed in April that the results should be averaged over two years, in response to complaints about volatility. That rule-writing project is still ongoing, but the central bank said on Friday that if the 2025 and 2024 results were averaged, the bank capital decline would increase to 2.3%. If the Fed is able to complete that rule-writing this year, the average results will be used to set the stress capital buffer beginning in the first quarter of 2026, officials said. In addition to averaging results, the Fed has said it also plans to make the scenarios it concocts and the models it uses to produce results available to the public and will be soliciting public feedback on them. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
17 hours ago
- Business
- Yahoo
Big banks all pass the Federal Reserve's stress tests, but the tests were less vigorous this year
NEW YORK (AP) — All the major banks passed the Federal Reserve's annual 'stress tests" of the financial system, the central bank said Friday, but the test conducted by the central bank was notably less vigorous than it had been in previous years. All 22 banks tested this year would have remained solvent and above the minimum thresholds to continue to operate, the Fed said, despite absorbing roughly $550 billion in theoretical losses. In the Fed's scenario, there would be less of a rise in unemployment, less of a severe economic contraction, less of a drop in commercial real estate prices, less of a drop in housing prices, among other metrics compared to what they tested in 2024. All of these less harmful, but simulated, drops mean there would be less damage to these banks' balance sheets and less risk of these banks of potentially failing. Since the banks passed the 2024 tests, it was expected that the banks would pass the 2025 tests. 'Large banks remain well capitalized and resilient to a range of severe outcomes,' said Michelle Bowman, the bank's vice chair for supervision, in a statement. An appointee of President Trump, Bowman became the Fed's vice chair of supervision earlier this month. It's not clear why the Fed chose to go with a less vigorous test this year. In a statement, the bank said previous tests had shown 'unintended volatility' in the results and it plans to seek public and industry comment to adjust stress tests in future years. The Fed also chose to not test the banks as heavily on their exposure to private equity assets, arguing that private equity assets are typically held for the long term and are not typically sold at times of distress. The Fed also didn't test for any bank exposure to private credit, a $2 trillion asset class that even Fed researchers themselves have observed to be growing alarmingly quickly. The Federal Reserve Bank of Boston recently pointed out that private credit could be a systemic risk to the financial system under a severe adverse scenario, which is exactly what the stress tests are supposed to test for. There was no wording or phrasing in the Fed's press release, reports or methodology about testing or measuring private credit or private debt in this year's test. The Fed's 'stress tests' were created after the 2008 financial crisis as a way to gauge whether the nation's 'too big to fail' banks could withstand another financial crisis like the once that happened nearly 20 years ago. The tests are effectively an academic exercise, where the Fed simulates a scenario in the global economy and measures what that scenario would do to bank balance sheets. The 22 banks that are tested are the biggest names in the business, such as JPMorgan Chase, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs, which hold hundreds of billions of dollars in assets and have wide-ranging businesses that touch every part of the U.S. and global economy. Under this year's hypothetical scenario, a major global recession would have caused a 30% decline in commercial real estate prices and a 33% decline in housing prices. The unemployment rate would rise to 10% and stock prices would fall 50%. In 2024, the hypothetical scenario was a 40% decline in commercial real estate prices, a 55% decline in stock prices and a 36% decline in housing prices. With their passing grades, the major banks will be allowed to issue dividends to shareholders and buy back shares of stock to return proceeds to investors. Those dividend plans will be announced next week. Ken Sweet, The Associated Press Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
