The Federal Reserve conducts an annual stress test of the 32 largest U.S. banks to assess how well they would withstand a severe recession or economic shock.
These tests were borne out of the global financial crisis of 2008 as legislators took steps to shore up the banking system to avoid a similar meltdown
This year, the large banks all passed the stress tests by varying degrees. According to the Fed, the banks proved they had sufficient capital to absorb nearly $708 billion in losses while continuing to lend to households and businesses under these hypothetical, stressful conditions. Under the hypothetical scenario of a severe recession, the aggregate common equity tier 1 (CET1) capital ratio of the 32 banks fell from an actual 12.8% Q4 of 2025 to a low of 11.2% in the depths of the hypothetical recession.
But this was still above the required minimum regulatory levels. Then the average recovered back to 12.7% by the end of the scenario. The stress test results typically lead to the Federal Reserve setting stress capital buffers for banks, which is the amount of additional capital they would need beyond the regulatory minimum to absorb a shock.