CONTACT: Brigid Richelieu
(202) 660-2569
bhagenbaugh@fsforum.com
Financial Services Forum Statement on 2024 Stress Test Scenarios
“The nation’s largest banks are strong, highly capitalized and resilient.”
Washington, D.C. – Financial Services Forum President and CEO Kevin Fromer issued the following statement today after the Federal Reserve released the scenarios for its annual bank stress tests:
“The nation’s largest banks in the post-Dodd-Frank era are strong, highly capitalized, and an important source of support to American households and businesses, even in the face of significant economic headwinds. Multiple hypothetical stress tests, as well as the real-life stress tests of the pandemic and last year’s banking turmoil, have shown that the largest U.S. banks can – and do – act as a bulwark for the economy and the financial sector.
“This marks the 15th year since the Federal Reserve began to administer stress tests to gauge the health of the largest U.S. banks. The stress test scenarios released today reflect a continuation of the highly rigorous standards applied to the largest banks. U.S. Global Systemically Important Banks (GSIBs) have more than tripled their capital levels over the past 15 years. And GSIB capital requirements are increasing each year regardless of any rule changes.
“The stringent regulatory capital framework in place and strong GSIB capital levels reinforce that additional significant capital increases, such as those in the Basel III Endgame proposal, are not justified and would harm American households, businesses, and the broader economy.
“Further, elements of the Basel III Endgame proposal would duplicate the stress test exercise, imposing unnecessary costs on companies, savers, investors, and the overall economy.
“For example, the stress tests include a global market shock, which stresses market-making activity, such as when banks assist private companies to go public, finance municipal infrastructure projects, fund companies through bond offerings, or ensure businesses and individuals can responsibly hedge their risks. Savers also use markets to find a liquid and valuable store of value for their hard-earned savings. The stress tests also account for operational risk losses, such as when a bank sustains damage to bank branches in a severe hurricane. Even though such elements are already subject to required capital calculated in the stress tests, the Basel III Endgame proposal would impose another capital requirement based on the same activities captured in the stress tests. Such redundancy is bad policy and bad for American companies and families.”
Additional Background:
Forum members since 2008 have more than tripled their common equity Tier 1 capital, which acts as a cushion against sudden financial losses, to over $900 billion. U.S. bank capital requirements, meanwhile, continue to increase and are higher than that required of foreign banks around the globe.
The Federal Reserve conducts stress tests, a simulation to determine a large financial institution’s ability to support the economy even when faced with an economic crisis, at least once a year.
Since 2012, total hypothetical stress test losses calculated by the Federal Reserve have ranged from 6.3 percent to 25 percent of aggregate Tier 1 capital for the eight U.S. GSIBs, demonstrating that Forum members maintain substantial capital to sustain losses as severe as those contemplated in the stress tests.
Go to smartbankcapital.com to learn more about the strength and resiliency of the nation’s largest banks and the costs of higher capital requirements.
###
The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States. Forum member institutions are a leading source of lending and investment in the United States and serve millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.
Visit our website: fsforum.com