Thirty of the largest banks operating in the U.S. would see losses of $501 billion in a severe recession, the Federal Reserve said Thursday in announcing stress-test results that it says shows a banking system in better shape than five years ago.
This nine-quarter test — under which banks would face a jobless rate spiking to 11.25% along with a 50% plunge in stock-market values and a 25% downturn in house prices — is designed to forecast the level of capital that banks would retain in a downturn. The $501 billion in losses consists of $316 billion in loan and lease losses and $151 billion in other losses like mortgage repurchases and the expenses of selling real estate.
A less severe downturn would result in losses among those banks of $355 billion, the Fed said.
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