Executive Summary
The 2024 stress test shows that the 31 large banks subject to the test this year have sufficient capital to absorb nearly $685 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).
Figure 2. Aggregate common equity capital ratio for 31 banks in the 2024 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 2024 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 of the 31 banks subject to the stress test this year falls from an actual 12.7 percent in the fourth quarter of 2023 to its projected minimum of 9.9 percent, before rising to 10.4 percent at the end of the projection horizon (see table 1). The aggregate and individual bank post-stress CET1 capital ratios remain above the required minimum regulatory levels throughout the projection horizon.
Table 1. Aggregate capital ratios, actual, projected 2024:Q1–2026:Q1, and regulatory minimums
Percent
| Regulatory ratio | Actual 2023:Q4 | Stressed minimum capital ratios, severely adverse | Minimum regulatory capital ratios |
|---|---|---|---|
| Common equity tier 1 capital ratio | 12.7 | 9.9 | 4.5 |
| Tier 1 capital ratio | 14.3 | 11.6 | 6.0 |
| Total capital ratio | 16.3 | 13.7 | 8.0 |
| Tier 1 leverage ratio | 7.8 | 6.2 | 4.0 |
| Supplementary leverage ratio | 6.4 | 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 2024:Q1 to 2026:Q1. Supplementary leverage ratio projections only include estimates for banks subject to Category I, II, or III standards.
As shown in figure 3, the 2.8 percentage point aggregate decline this year is larger than the aggregate decline of 2.5 percentage points last year but is within the range of declines in past years.
Figure 3. Aggregate maximum decline in stressed common equity tier 1 capital ratio, severely adverse scenario
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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.
The 2023 and 2024 supervisory severely adverse scenarios are generally similar (see table 2). In both scenarios, the unemployment rate rises from a low level to 10 percent and real gross domestic product declines substantially. As such, the scenario was not a major contributor to the year-over-year change in results.
Table 2. Key variables in 2023 and 2024 supervisory severely adverse scenarios
| 2023 severely adverse | 2024 severely adverse | |
|---|---|---|
| Unemployment rate | ↑ 6.4 p.p. to 10% | ↑ 6.3 p.p. to 10% |
| Real GDP (peak-to-trough change) | ↓ 8.7% | ↓ 8.5% |
| House prices | ↓ 38% | ↓ 36% |
| CRE prices | ↓ 40% | ↓ 40% |
| 3-month Treasury | ↓ 4.0 p.p. to 0% | ↓ 5.3 p.p. to 0% |
| BBB-bond rate spread | ↑ 3.6 p.p. to 5.8% | ↑ 4.1 p.p. to 5.8% |
| Equity prices | ↓ 45% | ↓ 55% |
Note: p.p. is percentage point.
As compared to last year's results, there are three main factors that influence the decline in this year's test:
- Substantial increases in banks' credit card balances, combined with higher delinquency rates, have resulted in greater projected credit card losses.
- Banks' corporate credit portfolios have become riskier, partly reflected in banks' downgrading of their own loans, resulting in higher projected corporate losses.
- The recent decline in noninterest net revenue at banks carries through to the stress test projection period, resulting in less projected pre-provision net revenue to offset losses.
Over the past year, banks subject to the stress test have grown their credit card balances by over $100 billion and have seen credit card delinquency rates rise by over 40 percent (see box 2, figure A). As a result, banks are projected to lose $175 billion on credit cards, or 17.6 percent of credit card loan balances, in the stress test.
These banks' corporate credit portfolios have also gotten riskier over the past year. This includes a decline in the investment-grade share of corporate loans (see box 2, figure B) and an increase in the share of loans that banks have downgraded in the corporate portfolio relative to the share of upgraded loans. As banks' portfolios have gotten riskier, the commercial and industrial loss rate has risen from 6.7 percent in the 2023 stress test to 8.1 percent in the 2024 stress test.
At the same time, banks have experienced a decline in their noninterest net revenue, which is noninterest income less noninterest expenses (see box 2, figure C for more information). In recent years, noninterest income at these banks, such as investment banking fees, has declined significantly from its post-pandemic high, while noninterest expenses, such as compensation and real estate expenses, have continued to grow. The decline in noninterest net revenue means that banks are projected to have lower pre-provision net revenues in the stress test to offset losses stemming from their loan portfolios and other assets.
Despite the larger projected decline in capital ratios in this year's stress test, banks would still be able to lend to households and business while remaining well above minimum capital requirements. In aggregate, banks would have over $600 billion in capital above their minimum requirements, based on the quarter in which the aggregate capital decline is the largest.
Further details 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. 2024 Stress Test Results Highlights."
This report includes
- background information regarding the 2024 stress test,
- description of stress test model adjustments,
- stress test results and highlights, and
- bank-specific stress test results (appendix A).