US Banks Face $541 Billion Losses, but Remain Strong
According to the Federal Reserve, the American banking system is anticipated to experience an outflow of funds exceeding $500 billion in what they refer to as a "severely adverse" scenario.
Recently, the Fed conducted its annual bank stress test, revealing that major US banks would be able to withstand a severe recession.
However, the stress test results indicate that a group of 23 prominent banking giants, including JPMorgan Chase, Bank of America, and Wells Fargo, would collectively suffer losses totaling $541 billion. These losses are attributed to various factors, such as capital sensitivities, revenue and expense fluctuations, and the overall economic and financial market conditions under stress.
These losses can be broken down as follows:
Loan losses total approximately $424 billion, constituting 78% of the total losses.
Additional losses of around $18 billion are incurred from items such as loans booked under the fair-value option, accounting for 3% of the total losses.
Trading and counterparty losses at the 11 banks with significant trading, processing, or custodial operations amount to approximately $94 billion, comprising 17% of the total losses.
Securities losses account for approximately $5 billion, representing 1% of the total losses.
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Despite the potential magnitude of these losses, the Federal Reserve’s analysis of the stress test maintains an optimistic tone.
“Despite total projected losses of $541 billion, all 23 banks tested remained above their minimum capital requirements during the hypothetical recession…
The stress test for this year incorporates a severe global recession scenario, encompassing a 40% decline in commercial real estate prices, a significant increase in office vacancies, and a 38% decline in house prices. The unemployment rate would rise by 6.4% to a peak of 10%, leading to a corresponding decline in economic output.”
Alexander Stefanov
Reporter at CoinsPress
Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.
