US banks would lose $700bn in economic crash, Fed stress tests find

US banks would face $700 billion in losses during a severe economic downturn, according to the Federal Reserve's annual stress tests released on June 26, 2024. This hypothetical scenario simulates a deep recession with a 40% drop in stock prices, a 15% unemployment rate, and a 3.75% contraction in GDP. Despite these potential losses, the 31 largest US banks collectively demonstrated sufficient capital to continue lending throughout such a crisis. The Federal Reserve's analysis indicated that the banks' aggregate capital would fall from 12.7% to 9.1% under the stress scenario, remaining above the minimum required threshold of 4.5%. Following these results, major financial institutions like JPMorgan Chase and Goldman Sachs announced plans to increase their quarterly dividends and share repurchases, signaling confidence in their financial stability. For example, JPMorgan Chase plans to raise its dividend by 8% to $1.15 per share and intends to repurchase $30 billion in common stock. Goldman Sachs also plans to increase its dividend by 17% to $0.25 per share and will repurchase $15.2 billion in stock. These capital return plans are contingent on maintaining capital levels above regulatory minimums throughout the year.