US Fed unveils Wall Street bank shares street-test scenarios

The Fed will assess the ability of the 23 largest US lenders to weather the crisis without depleting their capital to unsafe levels.

As part of the Federal Reserve’s exercise to test corporations’ ability to resist crises, Wall Street’s major banks will experience a hypothetical scenario of a severe global recession with heightened stress in both commercial and residential real estate markets.

The Fed will assess the ability of the 23 largest US lenders to weather the crisis without depleting their capital to unsafe levels. The stress test would include an “exploratory market shock” to the trading books of the largest and most complicated banks for the first time, according to the regulator.

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“This exploratory market shock will not contribute to the capital requirements set by this year’s stress test and will be used to expand the Board’s understanding of the largest banks’ resilience by considering more than a single hypothetical stress event,” the regulator said in a statement.

The Fed stated that these tests, which will also include developments in corporate debt markets, are not forecasts and should not be taken as projections of future economic circumstances.

In particular, the US unemployment rate will grow to 10% under the 2023 stress test scenario. Following the 2008 financial crisis, the tests were implemented to guarantee that the US banking system could weather the next crisis.