Board of Governors of the Federal Reserve System

Figure 1. How stress testing works for large banks

Caption: The Federal Reserve conducts stress tests to ensure that large banks are sufficiently capitalized and able to lend to households and businesses even in a severe recession. The stress tests evaluate the financial resilience of banks by estimating losses, revenues, expenses, and resulting capital levels under hypothetical economic conditions.

In this infographic, there are three arrows on the left side that are facing to the right.

The first arrow says, "The Federal Reserve develops stress test scenarios."

The second arrow says, "The Federal Reserve develops or selects stress test models."

The third arrow says, "Banks submit detailed bank data.1"

The arrows are pointing to box in the middle of the figure that says, "Using the scenario data and bank data as variables in the stress test models, the Federal Reserve projects how banks are likely to perform under a hypothetical recession."

The middle box is pointing to a box on the right side that says, "The Federal Reserve uses the results of the supervisory stress test, in part, to inform capital requirements for participating banks."

Figure 2. Aggregate common equity capital ratio for 31 banks in the 2024 stress test

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 2024 stress test reported data for all periods since 2009.
Source: FR Y-9C.

Figure 3. Aggregate maximum decline in stressed common equity tier 1 capital ratio, severely adverse scenario

Note: The bar represents the aggregate maximum common equity tier 1 (CET1) capital ratio decline of the banks in each exercise. The values for the 2018 and 2019 stress tests are estimates of the CET1 capital ratio decline had the stress capital buffer rule been in place at that time. For purposes of this figure, the 2018 and 2019 stress test values assume (1) a constant level of assets over the projection horizon, (2) no common dividend payments, (3) no issuances or repurchases of common or preferred stock (except those related to business plan changes), and (4) fully phased-in capital deductions.

Figure 4. When BHCs, covered SLHCs, and IHCs are required to participate in the supervisory stress test

Caption: The Board conducts stress tests of bank holding companies it supervises on an annual or two-year cycle. Based on a bank holding company’s financial condition, size, complexity, risk profile, risks to the U.S. economy, or scope of operations or activities, the Board may conduct a stress test of a bank holding company more or less frequently than required.

The figure has two two-column boxes.

In the top box, in the left column, it says "Every year." In the right column, there are three bullets. The top bullet says, "U.S. global systemically important bank holding companies (Category I)." The second bullet says, "Domestic bank holding companies and U.S. intermediate holding companies of foreign banks with $700 billion or more in total assets or $75 billion or more in cross-jurisdictional activity (Category II)." The bottom bullet says, "Domestic bank holding companies and U.S. intermediate holding companies of foreign banks with $250 billion or more in total assets or $75 billion or more in weighted short-term wholesale funding, nonbank assets, or off-balance-sheet exposure (Category III)."

In the bottom box, in the left column, "Every 2 years (in years ending in an even number)." In the right column, there is one bullet and a note. The bullet says, "Domestic bank holding companies and U.S. intermediate holding companies of foreign banks with $100 billion or more in total assets that do not meet the requirements for every-year stress testing (Category IV)." The note says, "Note: Bank holding companies of this asset size may also elect to participate in a stress test in a year ending in an odd number."

Figure A. Credit card balances and delinquency rate

Source: FR Y-14Q and FR Y-14M Data.

Figure B. Probabilities of default and year-over-year change in share of commercial and industrial (C&I) loans, by rating

Note: Probability of default is the bank-provided estimate of the annual probability an obligor defaults on its debt. Graded C&I loans are those that are rated or graded using the consolidated holding company’s commercial credit rating system, as it is defined in the consolidated holding company’s normal course of business. Not all C&I loans in the sample report probabilities of default.
Source: FR Y-14Q.

Figure C. Noninterest expense and noninterest income, as a share of assets

Note: 2023 noninterest expense excludes the FDIC special assessments.
Source: FR Y-9C.

Figure 5. Change from 2023:Q4 to minimum common equity tier 1 capital ratio in the severely adverse scenario

Note: Estimates of minimum common equity tier 1 (CET1) capital as a percent of risk-weighted assets are for the nine-quarter period from 2024:Q1 to 2026:Q1. Negative values indicate CET1 ratio increases.

Figure 6. Pre-tax net income rates in the severely adverse scenario

Note: Estimates are for the nine-quarter period from 2024:Q1 to 2026:Q1 as a percent of average assets.

Note: The Federal Reserve revised this report on August 28, 2024:

• Goldman Sachs was revised to -1.3.
• The median is now -1.3.

Figure 7. Projected losses in the severely adverse scenario

Note: Percent of total losses may not sum to 100 because of rounding.

Figure 8. Pre-provision net revenue rates in the severely adverse scenario

Note: Estimates are for the nine-quarter period from 2024:Q1 to 2026:Q1 as a percent of average assets.

Note: The Federal Reserve revised this report on August 28, 2024:

• Goldman Sachs was revised to 1.2.