Background
The results of the 2022 stress test include information for each bank, such as capital ratios, pre-tax net income, losses, revenues, and expenses, projected under severely adverse economic and financial conditions.
The Federal Reserve projects these stress test results using a set of supervisory models that take as inputs bank-provided data on their financial conditions and risk characteristics as well as the Federal Reserve's scenarios. The stress test uses models developed or selected by the Federal Reserve, which may be refined each year in advance of the stress test, and these models use bank-provided data collected primarily through regulatory reporting.2 This year, the supervisory severely adverse scenario is characterized by a severe global recession accompanied by a period of heightened stress in commercial real estate and corporate debt markets.3
Box 1. Model Adjustments due to the Pandemic
In the December 2020 stress test and the 2021 stress test, the Federal Reserve adjusted several models to account for the unprecedented movements in economic data caused by the pandemic. As banking conditions have stabilized and the macroeconomic outlook has improved, the Federal Reserve has removed all but one model adjustment for the 2022 stress test. In the commercial real estate model, the Federal Reserve has retained a lower bound on the recovery rate for loans collateralized by hotel properties.1 This lower bound was adjusted to be more risk sensitive for the 2022 stress test by separately calibrating its level for different risk segments of the loan population. Following the Federal Reserve's policies related to model risk management, this adjustment was reviewed by an independent validation group.2
1. See box 1 in Board of Governors of the Federal Reserve System, Dodd-Frank Act Stress Test 2021: Supervisory Stress Test Results (Washington: Board of Governors, June 2021), https://www.federalreserve.gov/publications/files/2021-dfast-results-20210624.pdf. Return to text
2. Each year, an independent System Model Validation group validates the supervisory stress test models. This group's model validation process includes reviews of model performance, conceptual soundness, and the processes, procedures, and controls used in model development, implementation, and the production of results. See Board of Governors of the Federal Reserve System, 2022 Supervisory Stress Test Methodology (Washington: Board of Governors, March 2022), https://www.federalreserve.gov/publications/files/2022-march-supervisory-stress-test-methodology.pdf. Return to text
A total of 34 banks are required to participate in this year's stress test (see table 2).4 In 2021, 23 banks participated in the stress test because the smallest banks subject to the supervisory stress test are generally only required to participate in the test every other year.5 Therefore, the aggregate results reported for the 2022 stress test are not fully comparable with the 2021 stress test results.
Table 2. Banks required to participate in the 2022 stress test
| Bank | Type1 |
|---|---|
| Ally Financial Inc. | Category IV |
| American Express Company | Category IV |
| Bank of America Corporation | Category I |
| The Bank of New York Mellon Corporation | Category I |
| Barclays US LLC | Category III |
| BMO Financial Corp. | Category IV |
| BNP Paribas USA, Inc. | Category IV |
| Capital One Financial Corporation | Category III |
| The Charles Schwab Corporation | Category III |
| Citigroup Inc. | Category I |
| Citizens Financial Group, Inc. | Category IV |
| Credit Suisse Holdings (USA), Inc. | Category III |
| DB USA Corporation | Category III |
| Discover Financial Services | Category IV |
| Fifth Third Bancorp | Category IV |
| The Goldman Sachs Group, Inc. | Category I |
| HSBC North America Holdings Inc. | Category IV |
| Huntington Bancshares Incorporated | Category IV |
| JPMorgan Chase & Co. | Category I |
| KeyCorp | Category IV |
| M&T Bank Corporation | Category IV |
| Morgan Stanley | Category I |
| MUFG Americas Holdings Corporation2 | Category IV |
| Northern Trust Corporation | Category II |
| The PNC Financial Services Group, Inc. | Category III |
| RBC US Group Holdings LLC | Category IV |
| Regions Financial Corporation | Category IV |
| Santander Holdings USA, Inc. | Category IV |
| State Street Corporation | Category I |
| TD Group US Holdings LLC | Category III |
| Truist Financial Corporation | Category III |
| UBS Americas Holding LLC | Category III |
| U.S. Bancorp | Category III |
| Wells Fargo & Company | Category I |
Note: The banks in this table are required to participate in the 2022 stress test. In addition to DB USA Corporation, DWS USA Corporation, a second U.S. intermediate holding company subsidiary of Deutsche Bank AG, is subject to the 2022 stress test.
1. Category I banks are the U.S. global systemically important banks (G-SIBs); Category II banks are those with at least $700 billion in total assets or at least $75 billion in cross-jurisdictional activity and that do not meet the criteria for Category I; Category III banks are those with at least $250 billion in total assets or at least $75 billion in nonbank assets, weighted short-term wholesale funding, or off-balance sheet exposure and that do not meet the criteria for Category I or II; and Category IV banks are those with at least $100 billion in total assets and that do not meet the criteria for Category I, II, or III. Return to table
2. Due to certain accounting reclassifications by MUFG Americas related to a pending divestiture, the Board determined not to include MUFG Americas' detailed projections in the 2022 stress test. The Board conducted an evaluation and determined that MUFG Americas has sufficient capital to absorb losses and continue to serve as a credit intermediary under a severe recession. Return to table
References
2. For more information on the models and bank-provided data, see Board of Governors of the Federal Reserve System, 2022 Supervisory Stress Test Methodology (Washington: Board of Governors, March 2022), https://www.federalreserve.gov/publications/files/2022-march-supervisory-stress-test-methodology.pdf. Return to text
3. For more information on the scenarios, see Board of Governors of the Federal Reserve System, 2022 Stress Test Scenarios (Washington: Board of Governors, February 2022), https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20220210a1.pdf. Return to text
4. Of these 34 banks, only 33 banks are included in the aggregate results of the 2022 stress test. See footnote 2 in table 2.
The Federal Reserve expects banks to wait until after 4:30 p.m. EDT on Monday, June 27, 2022, to publicly disclose any information about their planned capital actions and stress capital buffer requirements. This will give all banks sufficient time to examine and understand their results. Return to text
5. On October 10, 2019, the Board finalized a rule amending its stress test rules to subject certain banks with total consolidated assets between $100 billion and $250 billion to the supervisory stress test requirements on a two-year cycle (Prudential Standards, 84 Fed. Reg. 59,032 (Nov. 1, 2019)). Because of this rule change, the number of banks in this year's stress test is different from the 23 banks that participated in last year's stress test, which included two groups of banks: (1) banks that were required to participate in the 2021 stress test and (2) banks that were on a two-year stress test cycle and not required to participate in last year's stress test but chose to participate. For more information on which banks participated in the 2021 stress test, see Board of Governors of the Federal Reserve System, Dodd-Frank Act Stress Test 2021: Supervisory Stress Test Results (Washington: Board of Governors, June 2021), https://www.federalreserve.gov/publications/files/2021-dfast-results-20210624.pdf. Return to text