On June 28, local time, the Federal Reserve said that 23 large U.S. banks had passed the Fed's annual stress test.。This news will undoubtedly give the recent turmoil in the banking industry to eat down a reassurance.。

Each of the 23 banks tested has more than $100 billion in assets.。In the test, the Fed assumes a severe global recession (including severe pressures on commercial real estate), a spike in unemployment to 10 percent, a plunge in home and commercial real estate of about 40 percent, a 45 percent plunge in the stock market, increased market volatility, and higher corporate bond yields。In this scenario, the banks lost a total of $541 billion.。But their capital as a percentage of total risk-weighted assets averages 10.1%, well above the 4 required by the Fed.5%。

Included in the projected total of $541 billion in losses are more than $100 billion in commercial real estate and residential mortgage losses, and $120 billion in credit card losses, both higher than those projected in last year's test.。

Even in this extreme scenario, the largest banks, such as JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley, would all have capital buffers far exceeding the Fed's 4.Minimum requirement of 5%。The mid-sized regional banks participating in the test were also able to meet the Fed's requirements, including Puruixing Financial Services Group (PNC), Reserve Bank (Truist) and American Commercial Bank (M & T).。

"Today's results confirm that the banking system remains strong and resilient.。Michael Barr, the Fed's vice chairman for regulation, said, "But this stress test is just one way to measure that strength."。We should be humble about how risks arise and continue to work to ensure that banks are resilient to a range of economic scenarios, market shocks and other stresses. "。

Although the test results of these 23 banks are qualified, but specifically, there are still no small differences between banks.。

In terms of capital adequacy ratio (a measure of the buffer that banks must absorb potential losses), the bank with the highest capital adequacy ratio in the Fed's "severely unfavorable" scenario is Charles Schwab.。The bank was one of the banks that received a lot of attention from investors at the time of the banking turmoil earlier this year。

The bank with the lowest adequacy ratio is Citizens Financial, a regional bank based in Rhode Island.。Tests by other regional banks, such as US Bancorp and Savings Bank, also show that their buffer zones are smaller.。

In addition, eight of these "globally systemically important" banks have an average capital adequacy ratio of 10..9%, up slightly from last year。State Street's capital adequacy ratio is 13.8%, the highest among global systemically important banks。

In terms of revenue losses, the banking giants also reported their largest projected net income losses in a "severely unfavorable" scenario for the Fed.。Led by Citigroup, which lost as much as $34.9 billion。Wells Fargo is $32.9 billion, JPMorgan is $30.1 billion。

On commercial real estate loan losses, the Fed said banks' commercial real estate portfolios performed better than expected, with losses of $65 billion, or 8 percent of average loan losses..8%, slightly lower than last year's 9.8%。Goldman Sachs had the highest percentage of losses on commercial real estate loans in the test, at 16%, at $16 billion, followed by Morgan Stanley ($13.7 billion) and Citizens Bank ($12.4 billion).。

Goldman Sachs also has the highest projected losses on credit cards at $24.7 billion, followed by First Capital ($22.2 billion) and TD Group ($21.4 billion).。

In addition, the eight global systemically important banks were tested for "global market shocks" related to their trading positions.。This year's test also tested the banks' trading books for the first time against a second "exploratory market shock."。The Fed said that "global market shocks" refer to scenarios where there is a severe recession but inflation expectations are gradually weakening, while "exploratory market shocks" test scenarios where there is a less severe recession but more inflationary pressures.。

The results of these checks show that trading accounts of large banks are resilient in an environment of rising interest rates。Goldman Sachs expects to lose the most, losing $21.2 billion in a "global market shock" scenario and $18.1 billion in an "exploratory market shock" scenario.。Goldman also recorded the highest losses in a separate assessment by the Federal Reserve of the performance of the trading books of the largest banks under "global and exploratory market shocks."。

Banks typically use the results of the Fed's annual stress tests to determine how much money should be on their balance sheets to absorb shocks and how much money is left for dividends and buybacks.。Some banks are expected to announce share buybacks and dividend plans later Friday。

   

Good news, will we continue to implement strict new regulations?？

  

Share prices of several banks post gains after upbeat Fed report card。Among them, M & T Bank and Wells Fargo Bank each rose about 2% after the market, while JPMorgan Chase and Schwab Wealth Management both rose more than 1% after the market.。

Since the 2008 financial crisis, the Fed has instituted annual stress tests for the banking sector.。The test is the Fed's assessment of how banks' balance sheets respond to a hypothetical severe recession.。The test results released this time are also the first since the collapse of First Republic Bank, Silicon Valley Bank and Signature Bank in the United States earlier this year caused turmoil in the banking industry.。

The results of such tests drew "cheers" from many, who argued that they showed that Barr did not need to implement stricter regulations as he had promised.。

Lindsey Johnson, chairman and chief executive of the Consumer Bankers Association, said: "Given that this year has been the most difficult on record, these results are the best antidote to the lingering anxiety caused by recent bank failures.。"

Earlier this month, there were media reports that regulators, led by the Federal Reserve, were expected to unveil their proposed policy package by the end of the month。The proposal is expected to implement the last batch of new bank capital rules developed by the Basel Committee on Banking Supervision.。Under the new rules, the U.S. banking industry may face a capital increase of up to 20%。

Institutions with more than $100 billion in assets will need to comply with the new rule, while the existing threshold is $250 billion, meaning some U.S. regional banks may also be included.。The exact amount of the capital requirement will depend on the bank's business, with large U.S. banks with large trading operations expected to face the greatest capital increase.。These new rules are expected to come into force in early 2025.。

Many have expressed concern that requiring banks to accumulate more buffers will make it more difficult for banks to make good profits, while improving their stability, and could lead them to scale back certain types of lending。Costs will also increase for consumers。

Powell responded to the controversy last week.。"It's always a trade-off," he said. "More capital means a more stable and resilient banking system.。It may also mean a reduction in the availability of credit at the margin... there is no perfect way to assess this balance。"Powell didn't mean to let go, the landing of the new rules may be a high probability event。

In addition to the discussion of higher regulatory requirements, some have questioned the test results。Some industry sources have warned that the tests did not explore all of the bank's potential weaknesses。Because the Fed is examining bank balance sheets at the end of 2022, this means that the results do not reflect the impact of the banking crisis some time ago.。

Dennis Kelleher, president and CEO of advocacy group Better Markets, said: "This is dangerous, misleading, incomplete, and will bring false comfort.。"

Ian Katz, managing director of Capital Alpha Partners, said in a note: "One might ask how all banks can be recognised by regulators at a time when the banking industry is just going through a turbulent period.。But these tests are not approved or passed / failed for public consumption like beauty contests.。"

Fed officials also acknowledge that banks have performed relatively well, in large part because of the envisaged rapid decline in interest rates, allowing large banks to shrink unrealized losses on their current balance sheets and offset traditional loan losses.。

Barr, the vice chairman of regulation, said last week that the Fed is also exploring "reverse stress tests," which can be used as a tool to make banks more resilient by helping regulators recognize more exogenous problems that can go wrong, rather than following the pattern that regulators have been trained to capture in the past.。

Although the results are good news and can reassure most investors, the banking turmoil has subsided and the need to "let the bullets fly for a while"。