Summary: The Federal Reserve’s 2025 stress test showed all 22 major banks passing, but the test was gentler than in 2024. Theoretical losses were about $550 billion, and coverage of private equity/private credit was limited.

Federal Reserve Stress Test 2025: All 22 Big Banks Pass, but It Is Less Rigorous

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The Federal Reserve said all major banks passed the annual “stress test” of the financial system. However, compared with previous years, this year’s test was clearly less rigorous.

The Fed said the 22 banks tested this year would remain solvent and stay above the minimum threshold for continued operations even after absorbing theoretical losses of about $550 billion.

Under the Fed’s scenario, several indicators fell less than in 2024, including a smaller rise in unemployment, a milder economic contraction, smaller declines in commercial real estate prices, and smaller declines in housing prices.

These simulations of “less severe” damage mean a smaller hit to banks’ balance sheets and a lower risk of potential failure. Since the banks passed the 2024 stress test, markets generally expected them to pass the 2025 test as well.

Michelle Bowman, the Fed’s vice chair for supervision, said: “Large banks remain well capitalized and resilient under a range of severe outcomes.” Bowman, an appointee of President Trump, has served as vice chair for supervision since early this month.

It is still unclear why the Fed chose a less rigorous test this year. In a statement, the Fed said past stress tests had produced “unexpected volatility” in the results, and it plans to seek public and industry input in future years to refine the tests.

The Fed also applied less pressure this year to banks’ private equity holdings. Its rationale is that private equity assets are typically held for the long term and are not commonly sold during periods of market stress.

In addition, the Fed did not test banks’ exposure to private credit. Private credit has grown to about $2 trillion, and researchers at the Federal Reserve Bank of Boston have warned that its growth rate is troubling. The Boston Fed has said private credit could pose a systemic risk to the financial system in an extreme adverse scenario, and stress tests are designed to assess such risks.

The Fed’s press release, coverage, and methodology this year contained no wording about testing or measuring private credit or private debt.

The Fed’s “stress test” was created after the 2008 financial crisis to assess whether America’s “too big to fail” banks can withstand shocks similar to those from the crisis nearly 20 years ago. In essence, a stress test is an academic exercise: the Fed simulates global economic scenarios and measures their impact on banks’ balance sheets.

The 22 banks tested this year include industry giants such as JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs, and Morgan Stanley. These institutions hold hundreds of billions of dollars in assets and operate across many sectors of the U.S. and global economy.

In this year’s hypothetical scenario, a major global recession would push commercial real estate prices down 30%, housing prices down 33%, unemployment up to 10%, and stock prices down 50%. In the 2024 hypothetical scenario, commercial real estate prices fell 40%, stock prices 55%, and housing prices 36%.

With the test results passed, major banks will be permitted to pay dividends to shareholders and buy back stock, returning capital to investors. Dividend plans will be announced next week.