Federal Reserve Board's annual bank stress test confirms that large banks are well positioned to weather a severe recession and able to continue to lend to households and businesses

The Federal Reserve Board’s annual stress test found that all 32 large U.S. banks would remain above minimum capital requirements in a severe recession, absorbing more than $708 billion in total loan losses while their aggregate capital ratio fell only 1.6 percentage points [1]. The hypothetical scenario modeled a severe global recession in which commercial real estate prices dropped 39 percent, house prices fell 30 percent, and the unemployment rate peaked at 10 percent [1]. Despite those conditions, every bank stayed above its minimum common equity tier 1 capital threshold, the Fed reported on June 24, 2026 [1]. “Today’s results underscore the strength of the banking system,” Vice Chair for Supervision Michelle W. Bowman said [1]. Total projected losses included roughly $200 billion from credit cards, $160 billion from commercial and industrial loans, and $75 billion from commercial real estate [1]. The Fed noted that higher loan balances and more severe scenario variables drove a larger decline in projected capital than in the prior year, but that effect was more than offset by higher interest income tied to recent bank performance and smaller hypothetical declines in interest rates [1]. The current capital requirements will remain in place until 2027, when the stress test will incorporate loss-estimating models that reflect public feedback [1]. The Federal Reserve derives its authority from the Federal Reserve Act of 1913 and is structured as an entity “independent within the government” rather than independent of it, a design that has made the central bank a frequent subject of political pressure [7]. That pressure intensified in November 2025, when federal prosecutors in Washington, D.C., opened a criminal investigation into Fed Chair Jerome H. Powell over statements he made to Congress about the renovation of the Fed’s headquarters [9]. The inquiry, approved by U.S. Attorney Jeanine Pirro, examined whether Powell made false or misleading statements about the project’s scope and cost [9]. President Donald Trump, who has repeatedly criticized Powell for resisting calls to cut interest rates sharply, publicly accused him of “incompetence” and raised the prospect of legal action tied to the renovation [9]. The Department of Justice dropped the investigation on April 24, 2026, and Powell was never charged [9]. Bowman said the Fed is working to “increase the transparency and accountability of the stress test” and that public feedback would help “instill greater confidence in the stress test and its results” [1].