Stress tests results from large banks – with focus on commercial real estate, corporate debt – set for release Thursday

Results of 2022 stress tests of 34 banks with assets of more than $100 billion will be released Thursday, the Federal Reserve said late Monday, referring to tests aimed at measuring the impact of a worldwide recession exacerbated by commercial real estate and corporate debt market strains.

The Fed said the results will be released at 4:30 p.m. ET.

Generally, the stress tests strive to ensure that banks have adequate capital to absorb losses to allow them to lend to households and businesses even in a severe recession, the Fed noted. The tests evaluate banks’ resilience by estimating losses, net revenue, and capital levels under a hypothetical recession scenario.

This year’s tests measured the impact on the 34 large banks of a severe global recession with heightened stress in commercial real estate and corporate debt markets. In addition, banks with large trading operations were tested against a global market shock component that primarily stressed their trading positions; banks with substantial trading or custodial operations were tested against the default of their largest counterparty.

Additionally, under the 2022 test scenario, the U.S. unemployment rate rises 5.75% to a peak of 10% over two years, the Fed said. The jobless rate increase was accompanied by a 40% decline in commercial real estate prices, widening corporate bond spreads, and a collapse in asset prices, including increased market volatility.

In addition to the hypothetical scenario, banks with large trading operations were tested against a global market shock component that primarily stressed their trading positions, the Fed added. Banks with substantial trading or custodial operations were tested against the default of their largest counterparty.

A year ago, the Fed said its results of the 23 banks tested then showed continued strength. That round of tests was held without restrictions set after 2020 tests in the face of the coronavirus crisis.

The 2021 stress tests results showed, the Fed said, that all 23 banks tested remained well above their risk-based minimum capital requirements.

Banks with more than $100 billion in total consolidated assets are subject to the Fed’s stress tests, with larger banks required to participate annually and smaller banks required to participate every other year.

Federal Reserve Board announces that results from its annual bank stress tests will be released on Thursday, June 23, at 4:30 p.m. EDT

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