The nation's 31 largest banks stand to shed close to half a trillion dollars if the economy slumped into a deep depression, the Federal Reserve Board said on Thursday.
But the banks — a group including Citigroup, JP Morgan, Wells Fargo and Goldman Sachs — appear better positioned than ever to handle such loss, Fed data show.
The Fed on Thursday said its latest round of stress tests show that the nation's 31 largest banks would lose a whopping $490 billion in the year-and-a-half period ended in October 2016 if the economy was rocked by what it called "severely adverse" conditions.
Such a scenario would include an unemployment rate of 10%; a 25% decline in home prices; a stock market drop of nearly 60% and "a notable rise in market volatility."
Why would the Fed make such speculative remarks, seemingly out of nowhere?
But banks have been steadily building their capital reserves to protect against such losses, which has resulted in all the banks tested exceeding the Fed's capital ratios in its stress testing — for the first time ever.
Oh ok, so everything is fine.
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