On June 23, 2016, the US Federal Reserve Board released the results of supervisory stress tests for 33 participating BHCs, representing more than 80 percent of US domestic banking assets. According to the Federal Reserve Board, the largest US bank holding companies “continue to build their capital levels and improve their credit quality, strengthening their ability to lend to households and businesses during a severe recession.”

Under the most severe hypothetical scenario, the results project that loan losses at the 33 participating firms would total $385 billion during the nine quarters tested. This “severely adverse” scenario features a severe global recession with the domestic unemployment rate rising five percentage points, accompanied by a heightened period of financial stress and negative yields for short-term US Treasury securities. In addition to results under the severely adverse hypothetical scenario, the Federal Reserve Board also released results from the “adverse” scenario, which features a moderate recession and mild deflation in the United States. In this scenario, the average common equity tier 1 capital ratio of the 33 firms fell from an actual 12.3 percent in the fourth quarter of 2015 to a projected minimum level of 10.5 percent in the first quarter of 2018.

The Dodd-Frank Act supervisory stress tests are one component of the Federal Reserve Board’s analysis during the CCAR, which is an annual exercise to evaluate the capital planning processes and capital adequacy of large bank holding companies. This is the sixth round of stress tests led by the Federal Reserve Board since 2009 and the fourth round required by the DoddFrank Act.

The supervisory stress test methodology and results are available at: