Banks Could Weather Even Extreme Economic Tumult, Fed Finds

A severe spike in inflation. A plummet in the value of the dollar. The collapse of their biggest clients.

The largest banks in America could survive even those dire economic scenarios, according to an analysis released by the Federal Reserve on Wednesday.

The results are particularly noteworthy, because in addition to the Fed’s annual bank stress tests, this year, for the first time, the industry’s main regulator put big lenders through an enhanced hypothetical gantlet that mirrored and amplified some news events — including the unwinding of an investment fund that ultimately contributed to the fall of the Swiss banking giant Credit Suisse.

The industry cleared the higher bars, with as close to a clean bill of health as its leaders might have hoped.

“The banking system is able to withstand a funding stress under the moderate and severe economic conditions included in the exploratory analysis,” the Fed concluded.

Some 31 banks — all with more than $100 billion in assets — also passed the more routine annual stress tests, as has become common in recent years since the metrics were put in place after the 2008 financial crisis. Those tests measure banks’ projected performance through economic recessions, high unemployment, drops in housing prices and other scenarios.

Real estate has been a particular pressure point for banks, as many large lenders have been dumping loans tied to office buildings, among other areas, in an era of higher interest rates and low occupancy for commercial spaces.

Even so, the Fed found all of the banks held enough capital, or the money they are required to maintain to ensure stability and provide a financial cushion against losses.

The analysis is likely to be welcomed among Wall Street’s largest banks, which have united to oppose an international effort to raise their capital requirements, which they argue will crimp their ability to lend and ultimately raise costs on consumers. The finalization of that plan, known as “Basel III endgame,” has long been delayed, and Fed officials have said they expect to modify it further before it is adopted.

It took only nine minutes after the release of this year’s test for the Financial Services Forum, a bank lobbying group, to release a statement saying the results demonstrated that the hike in capital requirements was not warranted, because the largest U.S. lenders “remain capable of supporting the economy in the face of a severe economic downturn.”

A Fed official, speaking to reporters on Wednesday afternoon on the condition of anonymity, said the new results did not change the Basel III plans.

Given that banks clear the bar so routinely, the usefulness of the stress tests themselves has come under question.

This week, the left-leaning advocacy group Better Markets, which generally favors more regulation, derided the examinations as “stressless” and insufficiently challenging. Separately, Daniel K. Tarullo, a former Federal Reserve governor, said last month that the regulator should consider less-predictable testing.