“Banks continue to have strong capital levels, enabling them to continue lending to households and businesses during a severe recession,” the Fed says. Such tests are even more important this year, given the risk that the economy will indeed go into recession, as Fed Chairman
All banks tested remained above their minimum capital requirements, despite total expected losses of
The tests measure the resilience of large banks by estimating their levels of capital, losses, income and expenses under hypothetical scenarios over nine future quarters. This year’s hypothetical scenario is, according to the Fed, tougher than the 2021 test, and includes a severe global recession with substantial stress in commercial real estate and corporate debt markets. The unemployment rate rises by nearly 6 percentage points to a high of 10% and GDP declines commensurately. Asset prices fall sharply, with commercial real estate prices down nearly 40% and equity prices down 55%.
The 33 banks under examination started with a core capital level of 12.4% and would emerge from the recession at 10.3% after hitting that low of 9.7%. Eight banks would see their capital fall below 8%, including
Santander’s subsidiary in the country is one of the few banks that would even generate capital throughout a hypothetical recession. Already starting from a capitalization level among the highest, 18.8%, it would only fall to a low of 18.7% and would emerge from the recession with 18.9%, according to the results published by the
In the past, Santander has struggled a bit in
Each bank’s results in the stress test are taken into account when setting a bank’s capital requirements. The