Fed's 2023 Stress Test: Banks Survive, Credit Crunch Risk Looms

The Federal Reserve's latest bank stress tests reveal that the eight largest banks in the US are protected from the conditions that caused the collapse of Silicon Valley Bank. A broader test involving 23 top US banks showed that they would keep lending even in a severe recession, although they would face significant losses. The stress tests evaluate the sufficiency of banks' capital reserves to ensure they can continue providing credit during periods of financial stress. The Fed's vice chair for supervision has proposed modifications to the stress tests, including a "reverse stress test" to identify potential failure points. The Fed also conducted an exploratory market shock test on the largest banks, simulating conditions similar to SVB's collapse.