NEW YORK — The U.S.’s largest financial institutions have enough armor to withstand the turmoil of a major and prolonged U.S. and global recession, the Federal Reserve said Thursday.
The annual “stress tests” show that the 33 largest financial institutions, including JPMorgan Chase, Citigroup, Bank of America and Wells Fargo, all hold more capital than they did the year before. They also hold enough capital that, even if faced with billions of dollars in losses from loans as a result of an economic crisis, they would still function.
The stress tests were created in the wake of the financial crisis and subsequent Great Recession. The implosion of the housing market led the U.S. into its worse economic period since the Great Depression. Several large banks failed or were bought in to rescue operations. The losses were so great that U.S. taxpayers had to come to the rescue, at a cost of $700 billion.
This is the sixth round of stress tests the Fed has done, starting in 2009.
To keep this from happening again, Congress passed the Dodd-Frank financial reform laws in 2010. The law mandated the nation’s largest banks simplify their structure, raise more capital, and that bank regulators had to routinely monitor and test to make sure banks could withstand even the worst possible outcomes.