Aiming to Meet Regulatory Capital Requirements

March 26, 2018

Each year, the law requires the Fed to stress test every bank holding company with over $50 billion in assets. The test requires these firms to project losses, revenues, expenses, and capital levels nine quarters into the future under three economic and financial scenarios. If the holding company shows it can meet all regulatory capital requirements over the nine quarters, it passes the stress test.

About the 2017 Stress Tests

  • Thirty-four big banking companies underwent stress testing.
  • Combined, they hold over 75 percent of total assets of U.S. financial companies.
  • Each scenario included 28 domestic and international economic variables such as gross domestic product, unemployment rate, and interest rates.
  • Results suggest that firms would suffer substantial losses under the adverse scenario, or a moderate U.S. recession, and the severely adverse scenario, or a deep recession with U.S. unemployment reaching 10 percent.
  • Even under these conditions, the institutions would be able to continue lending.

Source: Federal Reserve Board of Governors



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