Board of Governors of the Federal Reserve System

Results for Banks under the Severely Adverse Scenario

This section details the Federal Reserve's results for the 2025 supervisory stress test under the severely adverse scenario. The results are presented both in the aggregate and for individual banks.

The aggregate results incorporate the combined sensitivities of capital, losses, revenues, and expenses across all banks to the stressed economic and financial market conditions included in the severely adverse scenario. The range of results across individual banks indicates differences in business focus, asset composition, revenue and expense sources, and portfolio risk characteristics. Box 2 describes the results of the 2025 exploratory analysis. The comprehensive 2025 stress test results for individual banks are in appendix A.

Capital

Under the severely adverse scenario, the aggregate CET1 capital ratio is projected to decline from an actual 13.4 percent at the start of the projection horizon to a minimum of 11.6 percent before rising to 12.8 percent at the end of nine quarters (see table 4). Tables 5 and 6 present post-stress minimum capital ratios for each bank and the change from the start of the projection horizon, which varies considerably across banks (see figure 7). This variation is due to differences in banks' business lines, portfolio composition, and securities and loan risk characteristics, which drive changes in the magnitude and timing of loss, revenue, and expense projections.

Table 4. Capital ratios and risk-weighted assets, actual 2024:Q4 and projected 2025:Q1–2027:Q1

Table 5. Projected minimum common equity tier 1 capital ratio under the severely adverse scenario, 2025:Q1–2027:Q1 22 banks

Table 6. Capital ratios, actual 2024:Q4 and projected 2025:Q1–2027:Q1 under the severely adverse scenario: 22 banks

Pre-tax Net Income

Projections of pre-tax net income are the largest component of post-stress changes in capital.¹⁰ Over the nine quarters of the projection horizon, aggregate cumulative pre-tax net income is projected to be negative $80 billion, which equals negative 0.4 percent of average total assets (see table 7). As a percent of average assets, projected cumulative pre-tax net income is negative for 16 of the 22 banks and varies considerably across banks, from negative 3.1 percent to positive 3.7 percent (see figure 8 and table 8). This range illustrates differences in the sensitivity of the various components of pre-tax net income to the economic and financial market conditions in the severely adverse scenario. These components include cumulative projections of losses and PPNR, which are discussed in further detail below.

Table 7. Projected aggregate losses, revenue, and net income before taxes through 2027:Q1 under the severely adverse scenario

Table 8. Projected losses, revenue, and net income before taxes through 2027:Q1 under the severely adverse scenario: 22 banks

Losses

Over the projection horizon, aggregate losses on loans and other positions are projected to be $549 billion. These losses comprise

• $472 billion in loan losses, accounting for 86 percent of total losses;
• $30 billion in additional losses from items such as loans booked under the fair-value option (see table 7), accounting for 6 percent of total losses;
• $42 billion in trading and counterparty losses at the 10 banks with substantial trading, processing, or custodial operations, accounting for 8 percent of total losses; and¹¹
• $4 billion in securities losses, accounting for 1 percent of total losses (see figure 9).¹²

For loans measured at amortized cost, projected aggregate losses are $472 billion, with the loan loss rate at 6.6 percent (see table 9).¹³ These loan losses flow into pre-tax net income through the projection of provisions for loan and lease losses, which is $473 billion in aggregate and takes into account banks' established allowances for credit losses at the start of the projection horizon.¹⁴

Table 9. Projected aggregate loan losses, by type of loan, under the severely adverse scenario, 2025:Q1–2027:Q1

Projected consumer loan losses represent a smaller share (40 percent) of total losses than commercial loan losses (46 percent). The loan portfolio that constitutes the largest amount of losses is credit cards, representing 29 percent of total losses.

Total loan loss rates vary significantly across banks, ranging between 1.2 percent and 16.4 percent (see table 10). This range results from differences in loan portfolio composition, which materially affects losses because projected loss rates vary significantly for different types of loans. For example, aggregate loan loss rates range from 1.9 percent on domestic first-lien mortgages to 16.9 percent on credit cards because of the sensitivity and historical performance of these loans. Some loan portfolios are sensitive to home prices or unemployment rates and may experience high stressed loss rates due to the considerable stress on these factors in the severely adverse scenario.¹⁵

Table 10. Projected loan losses by type of loan for 2025:Q1–2027:Q1 under the severely adverse scenario: 22 banks

Loan loss rates also reflect differences in the characteristics of loans within each portfolio. For example, the median projected loss rate on commercial and industrial (C&I) loans across all banks is 7.8 percent. The loss rate on C&I loans among individual banks ranges from 2.3 percent to 17.5 percent. For credit cards, the range of projected loss rates among banks is 9.7 percent to 23.4 percent, and the median is 17.4 percent.

For loans measured at fair value, losses enter pre-tax net income through the other loans loss category (see table 8). Loans measured at amortized cost and those measured at fair value generally have similar risk factors, but the latter are exposed to risk from the effects of market fluctuations, which can lead to more severe market value losses in periods of high market volatility or asset illiquidity.

Aggregate trading and counterparty losses, which also flow into pre-tax net income, are $42 billion for the 10 banks subject to the global market shock component and/or the largest counterparty default component of the severely adverse scenario. Individual bank losses range from less than $1 billion to more than $10 billion, resulting from the specific risk characteristics of each bank's trading positions and counterparty exposures, inclusive of hedges (see table 8). Importantly, these projected losses are based on the trading positions and counterparty exposures held by banks on the same as-of date (October 11, 2024) and could have varied if they had been based on a different date.

Aggregate credit losses on investment securities are $4 billion (see table 7). In addition, unrealized gains and losses on AFS debt securities are reflected in accumulated other comprehensive income (AOCI).¹⁶ Other comprehensive income (OCI) is projected to be $58 billion in aggregate.

Pre-provision Net Revenue

Pre-tax net income also includes projections of post-stress income and expenses captured in pre-provision net revenue (PPNR). Over the projection horizon, banks are projected to generate an aggregate of $469 billion in PPNR, which is equal to 2.3 percent of their combined average assets (see table 7).

PPNR projections are generally driven by the shape of the yield curve, the path of asset prices, equity market volatility, and measures of economic activity in the severely adverse scenario. In addition, PPNR incorporates expenses stemming from operational-risk events, such as fraud, employee lawsuits, litigation-related expenses, or computer system or other operating disruptions.¹⁷ In the aggregate, operational-risk losses are $179 billion for the 22 banks in the 2025 stress test. This amount is slightly lower than the $182 billion projected for the same set of banks in the 2024 stress test.

The ratio of PPNR to average assets varies across banks (see figure 10), primarily because of differences in business focus. For instance, the ratio of PPNR to assets tends to be higher at banks focusing on credit card lending, since credit cards generally produce higher net interest income relative to other forms of lending.¹⁸ Additionally, lower ratios of PPNR to assets do not necessarily imply lower pre-tax net income, because the same business focus and risk characteristics determining differences in PPNR across banks could also result in offsetting projected losses.

 

References

 

 11. For risk-based capital ratios, the numerator is capital, which is primarily impacted from pre-tax net income and gains/losses on available-for-sale (AFS) debt securities. The denominator for risk-based capital ratios is risk-weighted assets. Risk-weighted assets change minimally throughout the projection horizon as the result of an assumption that a bank's assets generally remain unchanged. Return to text

 12. The banks subject to the global market shock component and/or the largest counterparty default component are Bank of America Corporation; The Bank of New York Mellon Corporation; Barclays US LLC; Citigroup, Inc.; DB USA Corporation; The Goldman Sachs Group, Inc.; JPMorgan Chase & Co.; Morgan Stanley; State Street Corporation; and Wells Fargo & Company. Return to text

 13. For banks that have adopted ASU 2016-13, the Federal Reserve incorporated its projection of expected credit losses on securities in the allowance for credit losses, in accordance with Financial Accounting Standards Board (FASB), "Financial Instruments–Credit Losses (Topic 326)," FASB ASU 2016-13 (Norwalk, CT: FASB, June 2016). Prior to the adoption of ASU 2016-13, securities credit losses were realized through other-than-temporary impairment. Return to text

 14. The loss rate is calculated as total projected loan losses over the nine quarters of the projection horizon divided by average loan balances over the horizon. Return to text

 15. Provisions for loan and lease losses equal projected loan losses plus the amount needed for the allowance to be at an appropriate level at the end of each quarter. Return to text

 16. In addition, losses are calculated based on the exposure at default, which includes both outstanding balances and any additional drawdown of the credit line that occurs prior to default, while loss rates are calculated as a percentage of average outstanding balances over the projection horizon. Return to text

 17. Only banks subject to Category I or II standards or banks that opt in are required to include unrealized gains and losses on AFS debt securities in the calculation of capital. Category III and IV banks are not required to include unrealized gains and losses on AFS debt securities in the calculation of capital. Return to text

 18. These operational-risk expenses are not a supervisory estimate of banks' current or expected legal liability, as they are conditional on the severely adverse scenario and conservative assumptions, and they also incorporate the potential for substantial losses that do not involve litigation or legal exposure. Return to text

 19. Credit card lending also tends to generate relatively high loss rates, suggesting that the higher PPNR rates at these banks do not necessarily indicate higher profitability. Return to text