Executive Summary
The 2023 stress test shows that the 23 large banks subject to the test this year have sufficient capital to absorb more than $540 billion in losses and continue lending to households and businesses under stressful conditions. In the immediate years after the 2007–09 Global Financial Crisis, banks subject to the stress test substantially increased their capital, which has remained largely level for the past few years (see figure 2). The aggregate and individual bank post-stress common equity tier 1 (CET1) capital ratios remain well above the required minimum levels throughout the projection horizon.
Figure 2. Aggregate common equity capital ratio for 23 banks in the 2023 stress test
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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. Not all of the banks included in the 2023 stress test reported data for all periods since 2009.
Source: FR Y-9C.
Under the severely adverse scenario, the aggregate CET1 capital ratio of the 23 banks falls from an actual 12.4 percent in the fourth quarter of 2022 to its minimum of 9.9 percent, before rising to 10.5 percent at the end of the projection horizon (see table 1). The 2.5 percentage point aggregate decline this year is smaller than the aggregate decline of 2.7 percentage points last year, but comparable to aggregate declines in recent years (see box 2 for more information). While the decline in the aggregate capital ratio was smaller this year than last, the results vary significantly across different types of banks. The largest banks entered the stress test with large unrealized losses on securities portfolios.2 The values of these securities appreciate in the scenario as interest rates are projected to decline. On average, this results in somewhat smaller capital ratio declines for the largest banks. However, banks with concentrations in mortgages, credit cards, and commercial real estate generally had larger declines in post-stress capital ratios this year.
Table 1. Aggregate capital ratios, actual, projected 2023:Q1–2025:Q1, and regulatory minimums**
Percent
| Regulatory ratio | Actual 2022:Q4 | Stressed minimum capital ratios, severely adverse* | Minimum regulatory capital ratios |
|---|---|---|---|
| Common equity tier 1 capital ratio | 12.4 | 9.9 | 4.5 |
| Tier 1 capital ratio | 14.1 | 11.6 | 6.0 |
| Total capital ratio | 16.1 | 13.9 | 8.0 |
| Tier 1 leverage ratio | 7.5 | 6.1 | 4.0 |
| Supplementary leverage ratio | 6.3 | 5.1 | 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 2023:Q1 to 2025:Q1. Supplementary leverage ratio projections only include estimates for banks subject to Category I, II, or III standards.
*the data in the "Stressed minimum capital ratios, severely adverse" column were revised.
**Note: The Federal Reserve revised this report on July 27, 2023, due to two banks, Bank of America Corporation and The Bank of New York Mellon Corporation, submitting incorrect data. The revisions from the incorrect submissions do not result in a change to either bank's stress capital buffer but do affect projected capital ratios. In its review of these banks' data, the Federal Reserve conducted reviews of the other banks that underwent the stress test and found no errors in their submissions.
While stress tests are one of many supervisory tools, they are the most risk-sensitive and dynamic component of the regulatory capital framework. They help ensure banks can withstand acute financial stress and still be able to lend to households and businesses. However, recent events have highlighted the need for humility when assessing large bank resilience. Stress tests should continue to evolve over time to reflect an appropriately wide range of risks in today's complex and interconnected financial system. The exploratory analysis conducted this year demonstrates the capacity of supervisory stress testing to test for a wider range of risks and the value of doing so.
Further details of the results are provided in the "Results for Banks under the Severely Adverse Scenario" 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 from 2019 to 2023."
This report includes
- background information regarding the 2023 stress test,
- description of stress test model changes,
- stress test results and highlights, and
-
bank-specific stress test results (appendix A).
References
2. Only firms subject to Category I or II standards or firms that opt in are required to include unrealized gains and losses on securities in the calculation of capital. Category III and IV firms are not required to include unrealized gains and losses on securities in the calculation of capital. Return to text