What's new with the Fed's bank stress tests in 2022
Skip to main content
  • Home
  • Economy
    • Aviation
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
    • Book Review
    • Brands
    • Earth
    • Explorer
    • Fact Check
    • Family
    • Food
    • Game Reviews
    • Good Practices
    • Habitat
    • Humour
    • In Focus
    • Luxury
    • Mode
    • Panorama
    • Pursuit
    • Wealth
    • Wellbeing
    • Wheels
  • Epaper
  • More
    • Subscribe
    • Videos
    • Thoughts
    • Splash
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • COVID-19
    • Games
    • Long Read
    • Interviews
    • Offbeat
    • Podcast
    • Quiz
    • Tech
    • Trial By Trivia
    • Magazine
  • বাংলা
The Business Standard

Monday
February 06, 2023

Sign In
Subscribe
  • Home
  • Economy
    • Aviation
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
    • Book Review
    • Brands
    • Earth
    • Explorer
    • Fact Check
    • Family
    • Food
    • Game Reviews
    • Good Practices
    • Habitat
    • Humour
    • In Focus
    • Luxury
    • Mode
    • Panorama
    • Pursuit
    • Wealth
    • Wellbeing
    • Wheels
  • Epaper
  • More
    • Subscribe
    • Videos
    • Thoughts
    • Splash
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • COVID-19
    • Games
    • Long Read
    • Interviews
    • Offbeat
    • Podcast
    • Quiz
    • Tech
    • Trial By Trivia
    • Magazine
  • বাংলা
MONDAY, FEBRUARY 06, 2023
What's new with the Fed's bank stress tests in 2022

Global Economy

Reuters
21 June, 2022, 12:05 pm
Last modified: 21 June, 2022, 12:11 pm

Related News

  • Fed seen hiking policy rate above 5% as hiring surges
  • Could tech layoffs spread to rest of US economy?
  • Asian shares at 9-month high after resilient US economic data
  • Is a US recession near? Making the call is trickier than ever
  • Oil prices climb on hopes for Fed slowing interest rate hikes

What's new with the Fed's bank stress tests in 2022

Reuters
21 June, 2022, 12:05 pm
Last modified: 21 June, 2022, 12:11 pm
Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo
Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo

The US Federal Reserve will release the results of its annual bank health checks on Thursday. Under the "stress test" exercise established following the 2007-2009 financial crisis, the Fed tests banks' balance sheets against a hypothetical severe economic downturn, the elements of which change annually.

The results dictate how much capital banks need to be healthy and how much they can return to shareholders via share buybacks and dividends.

How well a bank performs dictates the size of its "stress capital buffer" - an extra cushion of capital the Fed requires to weather the hypothetical downturn, on top of regulatory minimums required to support daily business. The larger the losses under the test, the larger the buffer. 

Here are the highlights of this year's tests:

THE ROLLOUT

The Fed is expected to release the results after the market close on Thursday. Rather than passing or failing lenders, it typically publishes each bank's capital ratios and aggregate losses under the test, with details on how their specific portfolios - like credit cards or mortgages - fared.

Banks are not allowed, however, to announce their plans for dividends and buybacks until the following Monday, June 27.

The country's largest lenders, particularly JPMorgan Chase & Co, Citigroup Inc, Wells Fargo & Co, Bank of America Corp, Goldman Sachs Group Inc and Morgan Stanleyare closely-watched by the markets.

A TOUGHER TEST?

The Fed changes the scenarios each year. They take months to devise, which means they risk becoming outdated. In 2020, for example, the real economic crash caused by the Covid-19 pandemic was by many measures more severe than the Fed's scenario that year.

The Fed devised this year's scenario before Russia's invasion of Ukraine and the current hyper-inflationary outlook.

Still, the 2022 test is expected to be more difficult than last year because the actual economic baseline is healthier. That means spikes in unemployment and drops in the size of the economy under the test are felt more acutely.

For example, the 2021 stress test envisioned a 4 percentage point jump in unemployment under a "severely adverse" scenario. In 2022, that increase is 5.75 percentage points, thanks largely to rising employment over the past year.

As a result, analysts expect banks will be told to set aside slightly more capital than in 2021 to account for expected growth in modelled losses.

STRESSES IN COMMERCIAL REAL ESTATE, CORPORATE DEBT

This year's tests will also include "heightened stress" in commercial real estate, which was hit by the pandemic as workers were sent home, and corporate debt markets. Global watchdogs, including the International Monetary Fund, have warned of high levels of risky corporate debt as interest rates rise globally.

ALL BANKS TESTED

In 2022, all 34 US banks monitored by the Fed with over $100 billion in assets will undergo the stress test, compared with 23 lenders last year.

That's because the Fed adopted a new standard in 2020 that stipulated that banks with less than $250 billion in assets only have to take the test every other year. That means that large regional banks, like Ally Financial Inc and Fifth Third Bancorp are up again after a year off.

World+Biz / USA

US economy / US Federal Reserve / US federal reserve bank

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • A man walks past by a collapsed building after an earthquake in Malatya, Turkey February 6, 2023. Depo Photos via REUTERS
    Nearly 200 dead, many trapped under rubble as 7.9 magnitude quake rocks Turkey and Syria
  • LC issues lead to severe shortage of surgical equipment
    LC issues lead to severe shortage of surgical equipment
  • How govt is losing dividend from six listed firms
    How govt is losing dividend from six listed firms

MOST VIEWED

  • A liquefied natural gas (LNG) tanker is tugged towards a thermal power station in Futtsu, east of Tokyo, Japan November 13, 2017. REUTERS/Issei Kato/File Photo
    Asian spot LNG prices decline, but enough to tempt buyers?
  • Photo: Collected
    Indonesia 2022 GDP growth races to 9-year high on strong exports
  • Jerome Powell, chairman of the US Federal Reserve, speaks during a news conference. Photographer: Al Drago/Bloomberg
    When the Fed's suspected of bluffing, it has a problem
  • Why Pakistan is struggling to get another IMF bailout
    Why Pakistan is struggling to get another IMF bailout
  •  Gautam Adani, center.Photographer: Tomohiro Ohsumi/Bloomberg
    Billionaires from Hong Kong to Arkansas exposed to Adani crash
  • FILE PHOTO: The logo of the Securities and Exchange Board of India (SEBI) is pictured on the premises of its headquarters in Mumbai, India March 1, 2017. REUTERS/Shailesh Andrade/Files
    On Adani row, SEBI says it's committed to ensuring market integrity

Related News

  • Fed seen hiking policy rate above 5% as hiring surges
  • Could tech layoffs spread to rest of US economy?
  • Asian shares at 9-month high after resilient US economic data
  • Is a US recession near? Making the call is trickier than ever
  • Oil prices climb on hopes for Fed slowing interest rate hikes

Features

Photo: Collected

Get your partner a lovely present this Valentine's Day

1h | Brands
Pottery Wheel Craft Kit: A creative outlet for little hands

Pottery Wheel Craft Kit: A creative outlet for little hands

1h | Brands
Say it with Colours

Say it with Colours

1d | Mode
Photo: Courtesy

From 'Made in Bangladesh' to 'Designed in Bangladesh'

1d | Panorama

More Videos from TBS

Stage plays are going on in the digital age

Stage plays are going on in the digital age

33m | TBS Stories
Why does all the versatile roles go to Jisan?

Why does all the versatile roles go to Jisan?

38m | TBS Entertainment
ICB to withdraw Padma Bank Investment as return

ICB to withdraw Padma Bank Investment as return

17h | TBS Insight
Kiara Advani & Sidharth Malhotra's Wedding Update

Kiara Advani & Sidharth Malhotra's Wedding Update

17h | TBS Entertainment

Most Read

1
Leepu realised his love for cars from a young age and for the last 40 years, he has transformed, designed and customised hundreds of cars. Photo: Collected
Panorama

'I am not crazy about cars anymore': Nizamuddin Awlia Leepu

2
The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, U.S., September 4, 2018. REUTERS/Yuri Gripas/File Photo
Economy

IMF approves $4.7 billion loan for Bangladesh, calls for ambitious reforms

3
Belal Ahmed new acting chairman of SIBL
Banking

Belal Ahmed new acting chairman of SIBL

4
Fund cut as Dhaka's fast-track transit projects on slow spending lane
Infrastructure

Fund cut as Dhaka's fast-track transit projects on slow spending lane

5
Photo: Collected
Startups

ShopUp secures $30m debt financing to boost expansion, supply chain

6
Photo: Courtesy
Panorama

From 'Made in Bangladesh' to 'Designed in Bangladesh'

EMAIL US
contact@tbsnews.net
FOLLOW US
WHATSAPP
+880 1847416158
The Business Standard
  • About Us
  • Contact us
  • Sitemap
  • Privacy Policy
  • Comment Policy
Copyright © 2023
The Business Standard All rights reserved
Technical Partner: RSI Lab

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - oped.tbs@gmail.com

For advertisement- sales@tbsnews.net