Greg Baer, BPI President and CEO, issued the following statement on the 2025 stress test results:
“Today’s stress test results reaffirm the strength of the nation’s largest banks, but they also serve as an annual reminder of persistent flaws in the framework. Banks continue to hold excess capital not because of risk, but to hedge against uncertainty and year-to-year volatility in the Fed’s modeled results, now openly acknowledged by the Fed.
Much of the public focus remains on whether a bank ‘passed’ or ‘failed,’ but that misses the point. The stress test produces a binding, additive charge unique to the United States. The Fed still has not confirmed whether the averaging proposal, when finalized, would apply only prospectively; it is thus not clear whether final SCBs for 2025 will be determined under new or existing rules.
By this time next year, we are optimistic the Federal Reserve will have instituted a stress testing framework that is transparent, subject to public comment, consistent with the law and, therefore, a more accurate and less volatile assessment of banks’ capital needs under stress.”
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What is the Current State of Bank Capital in the U.S.?
Bank capital levels in the U.S. remain at all-time highs, and banks are a source of strength ready to lend to American consumers and businesses. The Common Equity Tier 1 capital ratio of the largest banks remains well above pre-crisis levels. Current bank capital levels fall in the middle of the range of optimal estimates cited by the banking agencies and are even closer to the upper end of recent academic estimates.[1]
[1] See https://bpi.com/u-s-bank-capital-levels-aligning-with-or-exceeding-midpoint-estimates-of-optimal/. (The banking agencies cite a range of optimal estimates between 6 and 17.5 percent, with a midpoint of 11.8 percent. Moreover, recent academic papers provide estimates that range from 6 to 14.5 percent, with a midpoint of 10.3 percent.)
About Bank Policy Institute.
The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud, and other information security issues.
Media Contacts
- Austin Anton, Bank Policy Institute, austin.anton@bpi.com
