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Investing.com -- The Federal Reserve’s annual stress test revealed Friday that the 22 largest U.S. banks have sufficient capital to endure a severe economic downturn while continuing to provide loans to customers.
The test, which simulates a hypothetical recession scenario including high unemployment and market volatility, showed these financial institutions maintaining strong capital levels even after absorbing combined losses exceeding $550 billion.
Despite these significant hypothetical losses, the banks’ capital levels decreased by only 1.8% in the Fed’s scenario. The institutions maintained more than twice the minimum capital required by regulations.
The results showed banks held an average common equity tier 1 capital ratio of 11.6%, substantially higher than the 4.5% regulatory minimum requirement.
Fed Vice Chair for Supervision Michelle Bowman noted in a statement that "Large banks remain well-capitalized and resilient to a range of severe outcomes."
This annual assessment helps ensure major financial institutions can withstand economic shocks while continuing to serve their lending functions during difficult economic periods.
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