On March 20th, the Federal Reserve released the results of the 2014 stress tests, of which 29 out of 30 banks passed.* This document outlines the results, improvements from prior tests, and the domestic and international economic scenarios the Federal Reserve tested against. Key highlights are:

  • With a capital ratio that more than doubles the 2009 ratio, the 30 largest bank holding companies (BHC’s) maintained an average capital ratio of 7.6 percent under the most severely adverse scenario. This is well above the regulatory minimum of 5.0 percent with only one BHC falling below the minimum.
  • The 2014 stress tests added several new features compared to 2013, including:
  • An independent balance sheet and risk-weighted asset (RWA) projections for individual BHC’s, improving comparability;
  • The use of Basel III’s phase-in requirements for calculating capital ratios;
  • The disclosure of individual BHC performance under both the adverse and severely adverse scenarios;
  • The testing of 30 BHC’s – which account for nearly 80 percent of U.S. banking assets – as opposed to 18 BHC’s, which were tested the previous year;
  • The default of the six largest BHC’s largest counterparty in derivative and swap trades; and,
  • A global market shock affecting a broad range of risk factors.
  • The domestic severely adverse scenario includes a decline in real GDP of nearly 4.75 percent between Q3’13 and Q4’14.
  • Additionally, there is an increase in the unemployment rate to 11.25 percent, a 50 percent drop in equity prices, and a housing price decline of 25 percent.
  • Internationally, the severely adverse scenario features recessions in the Euro area, the United Kingdom, and Japan. There is also below-trend growth in developing Asia.