The 31 large US banks that participated in a Federal Reserve stress test would all be able to withstand a severe global recession, a new demonstration of strength as they push back on stricter regulations that would require them to hold more capital.

Results released by the Fed Wednesday show that these banks would have enough capital on hand to absorb losses and continue lending during a two-year scenario where US unemployment climbs to 10%, commercial real estate prices fall 40% and the stock market plunges 55%.

Their losses in this simulation collectively amounted to $685 billion. That included $175 billion from credit cards, $142 billion from business loans, and nearly $80 billion from commercial real estate.

The biggest of the group — JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), Citigroup (C), Goldman Sachs (GS) and Morgan Stanley (MS) — would all have capital buffers close to double the Fed’s 4.5% minimum requirement under this extreme scenario.

Larger regional banks such as PNC (PNC) and Truist (TFC), Regions (RF), Citizens (CFG) and M&T Bank (MTB) also had relatively higher capital levels than the minimum.

One regional bank that has struggled this year, New York Community Bancorp (NYCB), was not part of the latest test. It will instead be examined in 2025.

"The goal of our test is to help to ensure that banks have enough capital to absorb losses in a highly stressful scenario," Fed vice chair for supervision Michael Barr said in a release. “This test shows that they do.”

But there were signs of some new weaknesses despite the passing grade applied to all banks.

The aggregate decline in capital ratios for the banks during a hypothetical downturn was larger than the decline posted by banks in last year’s test, when fewer lenders were examined.

"The test resulted in higher losses because bank balance sheets are somewhat riskier and expenses are higher," Barr added.

He cited three main factors driving the capital decline: "substantial" increases in bank credit card balances, riskier corporate credit portfolios, and less projected income due to higher expenses and lower fee revenue.

Results varied widely between banks. The bank with the highest rate of loan losses under the Fed’s "severely adverse scenario" was Discover (DFS), followed by Capital One (COF).

Capital One agreed earlier this year to purchase Discover in a deal that still needs regulatory approval to close.

The bank with the lowest rate of loan losses was Charles Schwab (SCHW).

The Fed first started applying stress tests to a wide group of banks in the aftermath of the last financial crisis. It was mandated annually by law for institutions with more than $100 billion in assets as part of legislation that passed in 2010.

A law passed in 2018 tailored the tests by banks’ size, meaning those in the range of $100 billion-$250 billion would be tested every other year.

Some Democrats and regulators last year were critical of that 2018 adjustment. They argued it could have helped prevent the problems that amassed at Silicon Valley Bank, which had not been subjected to a stress test before it failed in 2023.

Banks typically use the results of the annual Fed stress tests to determine how much they should have on their balance sheet to absorb shocks and how much they have left over for dividends and buybacks.

Some banks are expected to make announcements late Friday about how much money they now plan to return to shareholders.

Any moves are "likely to be modest for many" until lenders get more clarity from regulators about a new set of capital requirements proposed last year, said RBC Capital Markets analyst Gerard Cassidy.

The initial version called for raising capital levels an aggregate 16% and banks have spent the last year pushing back aggressively on the plan.

Regulators have signaled that alterations are coming, with Barr saying in May that he expects "broad and material changes" to the proposal.

Bloomberg reported this week that a new proposal could drop the capital hikes as low as 5%.

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