The Federal Reserve's annual stress test for 2024 projected that 31 of the largest U.S. banks would collectively incur $685 billion in losses under a severely adverse economic scenario. Despite these substantial projected losses, all banks tested demonstrated that they would maintain common equity tier 1 (CET1) capital ratios above the required minimum regulatory levels throughout the projection horizon. This year's projected losses are higher than the $541 billion projected in the 2023 stress test, attributed to factors like increased credit card balances, riskier corporate credit portfolios, and higher expenses.
The severely adverse scenario included a 10% rise in the U.S. unemployment rate, a 36% decline in house prices, and a 40% plunge in commercial real estate prices. The aggregate CET1 capital ratio for the tested banks is projected to decline by 2.8 percentage points, from 12.7% to 9.9%. Vice Chair for Supervision Michael Barr noted that while the severity of the stress test was similar to last year, the higher losses reflect riskier bank balance sheets and increased expenses, suggesting that required capital buffers should be larger.
Key areas contributing to the losses include $175 billion from credit card portfolios, representing 26% of total projected losses, due to higher balances and deteriorating performance like rising delinquency rates. Commercial and industrial (C&I) loans are projected to result in $141 billion in losses, or 21% of the total, reflecting a decline in the share of investment-grade corporate loans. Commercial real estate (CRE) loan losses are estimated at $77 billion. JPMorgan Chase, one of the tested banks, stated that the Fed's loss estimation for their "other comprehensive income" might be an overestimation.
