Fed stress test 2024: All 31 banks pass annual exercise
What did the exploratory analysis involve for the eight biggest banks?
The exploratory analysis for the eight biggest banks involved testing their resilience against funding stresses and a trading meltdown. This included a sudden surge in the cost of deposits combined with a recession, and a scenario where five large hedge funds implode. The banks avoided disaster and demonstrated the ability to withstand different types of trading book shocks.
How would big banks fare if five large hedge funds imploded?
In an "exploratory analysis" by the Federal Reserve, it was found that the eight biggest banks would lose between $70 billion and $85 billion if five large hedge funds were to implode. Despite the significant losses, the banks were able to withstand the hypothetical scenario, demonstrating their resilience to such events.
What hypothetical scenarios were included in the stress test?
The stress test included a severe recession scenario with a 10% unemployment rate, 40% decline in commercial real estate values, and 36% fall in housing prices. Additionally, there was an "exploratory analysis" involving funding stresses and a trading meltdown applied to the eight biggest banks, including a sudden surge in deposit costs combined with a recession and the implosion of five large hedge funds.