Board of Governors of the Federal Reserve System

Figure 1. How stress testing works for large banks

Caption: The Federal Reserve conducts stress tests to ensure that large banks are sufficiently capitalized and able to lend to households and businesses even in a severe recession. The stress tests evaluate the financial resilience of banks by estimating losses, revenues, expenses, and resulting capital levels under hypothetical economic conditions. In this infographic, there are three arrows on the left side that are pointing to the right. The first arrow says, "The Federal Reserve develops stress test scenarios." The second arrow says, "The Federal Reserve develops or selects stress test models." The third arrow says, "Banks submit detailed bank data." At times, Federal Reserve staff engage staff from banks subject to the stress test to better understand the submitted bank data and make adjustments, if needed. The arrows are pointing to box in the middle of the figure that says, "Using the scenario data and bank data as variables in the stress test models, the Federal Reserve projects how banks are likely to perform under a hypothetical recession." The middle box is pointing to a box on the right side that says, "The Federal Reserve uses the results of the supervisory stress test, in part, to inform capital requirements for participating banks."

Figure 2. Aggregate maximum decline in stressed common equity tier 1 capital ratio, severely adverse scenario

Figure 3. Decomposition of year-over-year changes in aggregate maximum decline in stressed common equity tier 1 capital ratio, severely adverse scenario

Figure 4. Aggregate maximum decline in stressed common equity tier 1 capital ratio, with averaging for 2025 stress test

Figure 5. When BHCs, covered SLHCs, and IHCs are required to participate in the supervisory stress test

The Board conducts stress tests of banks it supervises on an annual or two-year cycle. Based on a bank’s financial condition, size, complexity, risk profile, risks to the U.S. economy, or scope of operations or activities, the Board may conduct a stress test of a bank more or less frequently than required.

Applies to every year:

• U.S. global systemically important bank holding companies (Category I)
• Domestic bank holding companies and U.S. intermediate holding companies of foreign banks with $700 billion or more in total assets or $75 billion or more in cross-jurisdictional activity (Category II)
• Domestic bank holding companies and U.S. intermediate holding companies of foreign banks with $250 billion or more in total assets or $75 billion or more in weighted short-term wholesale funding, nonbank assets, or off-balance-sheet exposure (Category III)

Applies to every 2 years: (in years ending in an even number)

• Domestic bank holding companies and U.S. intermediate holding companies of foreign banks with $100 billion or more in total assets that do not meet the requirements for every-year stress testing (Category IV)

Figure 6. Aggregate common equity capital ratio for 22 banks in the 2025 stress test

Figure 7. Change from start to minimum common equity tier 1 capital ratio in the severely adverse scenario for 2025 stress test and average common equity tier 1 capital decline of 2024 and 2025 stress test

Figure 8. Pre-tax net income rates in the severely adverse scenario

Figure 9. Projected losses in the severely adverse scenario

Figure 10. Pre-provision net revenue rates in the severely adverse scenario

Figure A. NBFI loss rates by sub-sector

Figure B. U.S. G-SIB losses by type under exploratory market shock