All 22 Big Banks Pass Softer Fed Stress Tests in 2025

All 22 Big Banks Pass Softer Fed Stress Tests in 2025 \ Newslooks \ Washington DC \ Mary Sidiqi \ Evening Edition \ All 22 major U.S. banks passed the 2025 Federal Reserve stress tests without issue, demonstrating resilience even under simulated $550 billion in losses. This year’s stress scenario was significantly less severe, reflecting a weaker global economic outlook. The Fed also reduced scrutiny on private equity and skipped testing for private credit exposure entirely.

Quick Looks

• All 22 largest U.S. banks would remain well above minimum capital requirements after simulated losses.
• The Fed’s 2025 scenario showed milder contractions in jobs, housing, commercial real estate, and stocks compared to last year.
• Supervisory Vice Chair Michelle Bowman described large banks as “well capitalized and resilient.”
• The Fed plans to revise its stress testing approach after noting result volatility and will seek public input.
• Private equity exposure received less focus; private‑credit risks were excluded from the official tests.

Deep Look

In its closely watched annual assessment of the U.S. financial system, the Federal Reserve announced Friday that all 22 of the nation’s largest banks successfully passed the 2025 stress tests—an outcome expected by analysts, but shaped by a notably softer economic scenario than in previous years. Despite modeling roughly $550 billion in theoretical losses from a simulated global recession, the Fed concluded that all major institutions would remain solvent and above minimum capital requirements.

This year’s stress test was markedly more forgiving than the 2024 version. The Fed’s modeled recession included a 30% drop in commercial real estate (CRE) values, a 33% decline in housing prices, a 50% stock market collapse, and unemployment peaking at 10%. These figures represent a noticeable moderation compared to last year, which featured a 40% CRE plunge, 36% decline in home values, and 55% fall in equities. As a result, the financial damage simulated this year was less severe, prompting questions about whether the banks’ clean bill of health truly reflects long-term resilience or simply more lenient testing conditions.

Michelle Bowman, newly confirmed as Vice Chair for Supervision and a Trump appointee, defended the results in a press statement: “Large banks remain well capitalized and resilient to a range of severe outcomes.” Her comments came as the Fed faced criticism from some corners of the financial regulatory community for lowering the severity of the stress-testing benchmark during a period of mounting global uncertainty.

The reasoning behind the Fed’s less rigorous approach is twofold. First, the central bank pointed to a cooling global economy, suggesting that a less severe testing scenario better aligns with the macroeconomic climate. Second, it acknowledged that previous stress tests had produced what it termed “unintended volatility” in results—leading to unpredictability in how banks were evaluated year to year. In response, the Fed signaled it will launch a public consultation process to gather industry and community input on how to refine the framework in future cycles.

Notably absent from the official 2025 test parameters were two increasingly significant areas of concern: private equity and private credit. The Fed chose to reduce the emphasis on private equity holdings, arguing that these long-term, illiquid investments are typically not sold in distressed markets and thus don’t represent the same level of short-term risk. More controversially, the central bank did not test banks’ exposure to private credit—a $2 trillion market that has expanded rapidly and has been flagged by Fed researchers and external analysts as a potential source of systemic risk.

The Federal Reserve Bank of Boston recently warned that in an adverse economic scenario, the private credit market could pose a serious threat to financial stability. Despite that, the Fed conducted only an “exploratory analysis” of private credit holdings. This side study concluded that major banks are “generally well-positioned” to weather losses in the private credit space, but the results were not included in the formal stress test, raising questions about transparency and risk oversight.

The 2025 stress tests still followed the same fundamental design implemented after the 2008 financial crisis. Created to ensure that “too big to fail” banks could survive systemic shocks, the test involves a simulated recession and measures how each institution’s balance sheet would respond. The participating banks include titans of global finance—JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley—whose operations span lending, investment banking, trading, and asset management worldwide.

Thanks to their passing grades, these financial giants are now authorized to return capital to shareholders. They will announce their dividend payout and stock buyback plans next week. Such announcements are typically well-received on Wall Street, especially when market conditions are stable and regulatory scrutiny is seen as manageable.

Yet, some analysts warn that the softening of stress-testing standards could undermine the Fed’s credibility as a regulator. Critics argue that easing the parameters during a period of banking and geopolitical uncertainty may reduce the deterrent effect of the tests and could lead to riskier practices over time.

As the Fed considers adjustments to future tests, pressure is mounting from within the regulatory ecosystem and the financial community to include more comprehensive risk categories—including climate-related risks, private credit exposure, and crypto-financial links. While this year’s passing results may offer reassurance in the short term, they also underscore a deeper debate: how to ensure that regulatory tools evolve alongside rapidly changing financial markets.

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