United States: Annual Resilience Test, which is commonly known as a stress test, was recently conducted, which has concluded that biggest banks of the United States are advantageously placed to survive any kind of recession. In addition to this, it was also highlighted that the banks can lend to households and businesses in the upcoming future.

However, experts have claimed that the banks could bear major losses if America continues to deal with the significant economic downturn in the upcoming year, according to reports by CNN.

Great Recession and US Financial System!

Following the Great Recession, which was caused by a consistent baking crisis in the US, the Fed has been monitoring the financial system – assisting in uncovering potential weaknesses. Last year, the scrutinization of the test was increased to an extra level after three US banks sent shockwaves through the banking system.

Current Stress Test

According to experts, this year, the tested banks witnessed an increase of around USD 144 billion. However, all the 31 banks will deal with a loss of approximately USD 685 billion.

Fed Vice Chair for Supervision Michael Barr said that banks are losing more money because they are taking on more risk and facing higher costs. The current high interest rates make it riskier and more expensive for banks to lend money, which can hurt their profits.

One major issue for banks this year is credit card debt, which has reached a record high. More people are also making late payments, leading to higher expected credit card losses. On top of that, banks are earning less from fees, which gives them less money to cover these losses.

While addressing the concern, Barr mentioned, “The goal of our test is to help to ensure that banks have enough capital to absorb losses in a highly stressful scenario. This test shows that they do.”

The reports have claimed that the test was passed was all banks and the special focus was given to their performance during the severe recession.

Discover Financial Services and its biggest loan rate!

The biggest loan loss rate of approximately 18.7 percent was suffered by Discover Financial Services, followed by Capital One, which saw a loan loss rate of 16.5 percent. As per reports by CNN, at the start of 2024, Captial One (COF) announced that it has been planning to acquire Discover (DFS); as of now, the acquisition has not been finalized, and it will require approval by the Officer of the Comptroller of the Currency and the Fed.

The decision will be made in a joint meeting, which has been scheduled for next month.

Discover, and Capital One didn’t do well in the stress tests, which means regulators will probably take an even closer look at their finances. After the stress test results were released at 4:30 pm ET on Wednesday, the shares of both companies dropped in after-hours trading.

On the other side, the smallest loan loss rate, i.e. 1.3 percent was suffered by Charles Schwab (SCHW). Reportedly, its shock has seen an increase after results of the stress test.

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