US banks ensure financial strength in annual Fed stress test despite facing steeper hypothetical losses

From Investing.com: 2024-06-26 17:30:55

The biggest U.S. banks have enough capital to withstand economic turmoil, according to the Federal Reserve’s annual stress test. Banks faced steeper hypothetical losses due to riskier portfolios. Despite this, banks are expected to announce capital plans to shareholders soon. Some smaller lenders saw their capital levels closer to the minimum.

Charles Schwab Corp had the highest capital levels in the stress test. Large banks like JPMorgan and Wells Fargo posted double-digit capital ratios. Smaller regional lenders like BMO and HSBC had stressed capital ratios below 7%. The banking industry remains strong, with the American Bankers Association criticizing higher capital requirements.

Credit cards were a major source of losses for banks in the test, with over a quarter of hypothetical losses coming from this source. Corporate credit portfolios at banks have shifted to riskier loans, with non-investment grade loans more likely to default. Discover Financial posted the steepest commercial and industrial loan losses at 21.8%.

Non-interest income at banks has declined, while non-interest expenses have not. The results of the stress tests determine how much capital banks must hold against potential losses, with excess funds returned to shareholders. This year’s test results are significant as they impact the capital plans banks can announce.



Read more at Investing.com: US banks suffer steeper losses, but retain large cushions in annual Fed health check By Reuters