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All major banks, after SVB, successfully clear the annual stress test by the Federal Reserve



The nation’s 23 largest banks would all survive a steep economic downturn, the Federal Reserve found in its annual stress test of top lenders, providing a vote of confidence in a sector rattled by three notable failures this spring.

Even if an economic shock sends unemployment tripling to 10 percent and commercial real estate prices plunging 40 percent, forcing big banks to absorb more than $540 billion in losses, the companies could continue lending, the Fed found.

“Today’s results confirm that the banking system remains strong and resilient,” Fed Vice Chair for Supervision Michael S. Barr said in a statement. But he added that the test was only one way to measure the system’s resiliency and that banking regulators should “remain humble about how risks can arise.”

Regulators, including those at the Federal Reserve, have come in for criticism since the collapse of Silicon Valley Bank in March touched off a banking crisis that sunk two other midsize lenders, Signature Bank and First Republic. Members of Congress from both parties have accused the industry’s federal overseers of failing to spot vulnerabilities in those firms’ balance sheets before they crumbled.

The Fed’s test, developed after the 2008 global financial crisis shook Wall Street’s foundations, aims to assess banks’ sturdiness by seeing if they have sufficient capital cushions to withstand a punishing hypothetical recession.

The test included a new component this year, probing how eight Wall Street giants — including Citigroup, Goldman Sachs and JPMorgan Chase — would weather a shock to their trading books brought on by rising inflationary pressures and interest rates. It found all would be “resilient” in such a scenario.

This year’s exam was crafted before the spring banking crisis. Barr has said recently he is looking at how to adapt the central bank’s tools to incorporate lessons from the bank failures. Banks already are bracing for tougher rules out of Washington, including a hike in the amount of capital they hold in reserve that the Fed is expected to announce this summer.


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