Fed stress test: 32 banks pass 10% unemployment scenario

All 32 of the largest U.S. banks passed the Federal Reserve’s 2026 stress test, the Fed published on June 24. The exercise modeled a severe global recession that pushed unemployment from 5.5% to a 10% peak, cut commercial real estate values by 39% and reduced home prices by 30%. The Fed found the group could absorb about $708 billion in combined losses and remain above regulatory capital minimums.

The scenario required banks to take on simultaneous shocks including a sharp market shock for firms with large trading operations and the sudden default of their largest counterparty. The Fed’s calculations assigned roughly $200 billion to credit-card losses, about $160 billion to commercial and industrial loan losses, and around $75 billion to losses tied to commercial real estate. After applying those stresses, the industry’s common equity tier 1 ratio fell by about 1.6 percentage points on average but stayed above required buffers.

The test covered 32 firms this year, up from 22 in 2025. Modeled losses rose from about $550 billion last year to $708 billion in 2026. The Fed decided in February to freeze the stress capital buffer requirements through 2027 while it updates the models used to set those buffers. That freeze means this year’s results do not change how much capital the banks must hold or immediately alter limits on dividends and share buybacks.

Analysts at KBW identified specific banks that would have experienced the largest declines in their stress buffers if the scores had been binding, including Morgan Stanley, Citigroup, Citizens Financial and KeyCorp. Market participants and regulators say the annual exercise serves as an annual health check for the largest institutions even when scores do not trigger new requirements.

The requirement for annual stress testing traces to reforms after the 2008 financial crisis. The Dodd-Frank Act of 2010 required the biggest banks to demonstrate they could survive severe economic stress without government rescue. In 2018, Congress raised the asset threshold for the most intensive supervision from $50 billion to $250 billion, which reduced the number of banks subject to the strictest exams. Failures at several mid-sized regional banks in 2023 prompted renewed attention to that threshold.

The Fed highlighted concentrated risks in commercial real estate, corporate debt and a path of interest rates that remain high for longer. The scenario was designed to show how higher unemployment would increase loan defaults, falling property values would deepen losses on real estate lending, and market volatility would reduce trading revenue at a time banks might otherwise rely on it.

Michelle Bowman, the Fed’s vice chair for supervision, described the results as evidence that the largest institutions can withstand a steep downturn. Regulators and investors will use the findings to monitor vulnerabilities and inform expectations about lending, bank valuations and investor confidence while the stress capital buffer framework is revised.