All 32 large US banks subject to the Federal Reserve's annual supervisory stress test maintained capital above regulatory minimums under a hypothetical severe recession, results published on 24 June showed. The aggregate common equity tier 1 capital ratio fell 1.6 percentage points from 12.8% to a projected minimum of 11.2%, the smallest decline since 2020.

The scenario was harder than last year's across most variables, modelling a 39% decline in commercial real estate prices, a 58% fall in equity prices and a 4.7 percentage point widening in corporate bond spreads. Total projected losses across loans, trading books and securities reached $708 billion, with loan losses alone at $625 billion. Credit cards were the largest single contributor at $203 billion, or 29% of total loan losses.

The 2026 cohort of 32 banks is larger than the 22 that participated in 2025, because banks in the lower asset category participate only in even-numbered years. Aggregate figures are not directly comparable between cycles.

Rate floor, not stronger portfolios, drove the improvement

The improved headline result was driven by the scenario's interest rate assumptions rather than by stronger bank portfolios. The 2026 severely adverse scenario set a projected floor for 10-year Treasury yields of 2.3%, against 1.0% in 2025 and approximately 0.8% in 2024. Because the Fed's models project net interest income forward from recent bank earnings, a higher rate floor generates substantially more projected income across the nine-quarter stress horizon.

The effect is visible across three years of data. Aggregate pre-provision net revenue as a share of average assets rose from 1.9% in 2024 to 2.3% in 2025 to 3.0% in 2026, consistent with the rising rate floor across all three cycles. The share of tested banks projecting negative pre-tax net income under stress fell from 84% in 2024 to 73% in 2025 to 53% in 2026. Aggregate pre-tax net income for the 32 banks reached positive $1.2 billion in 2026, against negative $80.4 billion across 22 banks in 2025 and negative $270.3 billion across 31 banks in 2024.

The credit card figures tell a different story. Despite the 2026 scenario modelling a GDP contraction of 4.6% against 8.5% in 2024, the aggregate credit card loss rate held at 17.1%, barely changed from 17.6% in 2024 and 16.9% in 2025. The rate's insensitivity to a materially easier recession scenario reflects the structural characteristics of unsecured consumer lending rather than any cyclical improvement. The banks also entered this cycle from a slightly weaker starting position, with aggregate CET1 of 12.8% at end-2025 against 13.4% at end-2024.

Results across individual banks reflected business model composition. Projected minimum CET1 ratios ranged from 6.7% at First Citizens Bancshares, which carries a loan-heavy book with significant commercial real estate exposure, to 32.2% at Charles Schwab, whose brokerage-oriented balance sheet generates limited loan losses relative to its capital base. Capital One's CET1 fell 3.3 percentage points to a projected minimum of 11.0%, driven by a credit card portfolio with a projected loss rate of 21.8%.

Capital buffer freeze unlocks shareholder returns

The 2026 results carry no immediate consequence for required capital levels. In February, the Federal Reserve Board voted to maintain stress capital buffer requirements at 2025 levels until 2027, pending a public review of its stress testing models. The buffer sits on top of the 4.5% minimum CET1 requirement and is calibrated partly on stress test outcomes. It remains unchanged across all 32 institutions, ranging from 2.5% to 11.5%.

With no new buffer requirements generated, JPMorgan Chase, Goldman Sachs, Morgan Stanley and Wells Fargo each announced dividend increases on the day results were published. JPMorgan raised its quarterly dividend 10% to $1.65 per share and authorised a new $50 billion share repurchase programme. Goldman Sachs lifted its quarterly dividend 11% to $5.00 per share. Morgan Stanley raised its payout 15% to $1.15 per share and reauthorised a $20 billion multi-year buyback. Wells Fargo announced an 11% increase to $0.50 per share.

The Fed's own test showed higher projected loan losses than the prior cycle, a lower aggregate starting capital ratio and no structural improvement in credit card risk. The administrative freeze on capital buffers meant none of that changed what the banks are required to hold.

The 2027 stress test will be the first conducted under revised models incorporating public feedback, and the first in which results are expected to count toward capital requirements again. It will also be the first cycle in which the income assumptions built into the scenario reflect the new methodology rather than an inherited rate environment.