The Fed Just Threw Large Banks Another Curveball
The Federal Reserve recently released its hypothetical scenarios for 2023 bank stress testing. Every year, the Fed puts the largest, most complex, and systemically important banks through a hypothetical set of adverse economic scenarios to see how bank balance sheets and capital levels would hold up.
Introduced as part of Dodd-Frank legislation following the Great Recession in 2007-09, the goal of stress testing is to make sure banks can withstand a severe economic shock and still be able to lend to individuals, families, and businesses. But investors also watch stress testing because it plays a key part in determining bank capital requirements. The more capital banks hold, the weaker their returns are and the less capital they can return to shareholders.
In this year's stress-testing scenario, the Fed threw banks another curveball. Let me explain.
Source Fool.com
