Executive Summary
The 2022 stress test shows that large banks have sufficient capital to absorb more than $600 billion in losses and continue lending to households and businesses under stressful conditions. In large part, this is due to the substantial buildup of capital since the 2007–09 financial crisis (see figure 1).
Figure 1. Aggregate common equity capital ratio
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Note: The Federal Reserve's evaluation of a bank's common equity capital was initially measured using a tier 1 common capital ratio but now is evaluated using a common equity tier 1 capital ratio, which was introduced into the regulatory capital framework with the implementation of Basel III to replace Basel I. Not all of the banks included in the 2022 stress test reported data for all periods since 2009.
Source: FR Y-9C.
Under the severely adverse scenario, the aggregate common equity tier 1 (CET1) capital ratio falls from an actual 12.4 percent in the fourth quarter of 2021 to its minimum of 9.7 percent, before rising to 10.3 percent at the end of the projection horizon (see table 1). The 2.7 percentage point aggregate decline this year is slightly larger than the aggregate decline of 2.4 percentage points last year. This partly reflects that banks have reduced their allowances for credit losses as conditions have improved over the past year and, all else equal, smaller initial allowances result in larger post-stress capital declines. It also reflects design features of the severely adverse scenario that increase the hypothetical stress on economic and financial market conditions as current economic conditions improve, which result in a slightly higher loan loss rate this year. Despite the larger post-stress decline this year, the aggregate and individual bank post-stress CET1 capital ratios remain well above the required minimum levels throughout the projection horizon.
Table 1. Aggregate capital ratios, actual, projected 2022:Q1–2024:Q1, and regulatory minimums
Percent
| Regulatory ratio | Actual 2021:Q4 | Stressed minimum capital ratios, severely adverse | Minimum regulatory capital ratios |
|---|---|---|---|
| Common equity tier 1 capital ratio | 12.4 | 9.7 | 4.5 |
| Tier 1 capital ratio | 14.1 | 11.4 | 6.0 |
| Total capital ratio | 16.1 | 13.7 | 8.0 |
| Tier 1 leverage ratio | 7.5 | 6.0 | 4.0 |
| Supplementary leverage ratio | 6.1 | 4.8 | 3.0 |
Note: The capital ratios are calculated using the capital action assumptions provided within the supervisory stress testing rules. See 12 C.F.R. § 238.132(d); 12 C.F.R. § 252.44(c). These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. The minimum capital ratios are for the period 2022:Q1 to 2024:Q1. Supplementary leverage ratio projections only include estimates for banks subject to Category I, II, or III standards.
Further details of the results are provided in the "Results" section of this report, which includes results presented both in the aggregate and for individual banks, as well as results highlights in "Box 2. Results Highlights."
This report includes
- background information regarding the 2022 stress test,
- the description of a stress test model adjustment,
- stress test results and highlights for banks, and
- bank-specific stress test results (appendix A).