All 22 large banks subject to the Fed’s annual “stress test” exercise, to gauge if they can weather a sharp downturn, were found to have passed.

“Large banks remain well capitalised and resilient to a range of severe outcomes,” said Fed vice chair for supervision Michelle Bowman in a statement.

“The 2025 stress test results show that the 22 large banks subject to the test this year have sufficient capital to absorb more than US$550 billion in losses,” the Fed said in its report.

A senior Fed official added that even after enduring such projected losses, they still have more than double their minimum capital requirements, marking solid levels.

This year’s scenario included a severe global recession with elevated stress in commercial and residential real estate markets, as well as corporate debt markets.

The hypothetical crisis included a 30% drop in commercial real estate prices and a 33% fall in house prices.

The unemployment rate rose nearly 5.9 percentage points to reach 10% in this situation, while economic output also declined.

But the scenario was less severe than last year’s due to the test’s “countercyclical design”, the Fed said.

The stress tests were implemented in the wake of the 2008 global financial crisis, and they apply to banks with at least US$100 billion in total assets, including a top tier designated as “global systemically important banks”.

But smaller banks are only subjected to the stress tests every two years.

The Fed on Friday noted that volatility in test results underscores why officials should consider averaging the outcomes over two years.