2023 Federal Reserve Stress Test

I was happy to see last week the results of the Federal Reserve’s annual stress test of 23 of the nation’s largest banks. Each of the banks survived the most adverse scenario with capital levels above the regulatory minimum of 4.5%, with Fed Vice Chair Michael S. Barr stating, “Today’s results confirm that the banking system remains strong and resilient.”

A year ago, the Fed hypothetically stressed 33 banks and featured a severe global recession accompanied by a period of heightened stress in commercial real estate and corporate debt markets. But even while last year’s test incorporated counter-cyclical shocks, it failed to foresee that the plunge in bond prices due to the Fed’s rate-rising regime might contribute to the fear-driven bank runs that occurred in March.