US Banks Weather Fed’s Commercial Real Estate Stress Test

The Federal Reserve’s 2024 stress test results indicate that major US banks are well-equipped to handle a severe downturn in commercial real estate (CRE) values, even amid growing risks in the sector. These simulations, which envision a global recession scenario, demonstrate the banks’ resilience despite a hypothetical 40% drop in CRE values and other adverse economic conditions.

Key Findings
The stress tests revealed that all 31 tested banks have sufficient capital to absorb nearly $685 billion in losses. The CRE sector remains a focal point of concern, with $929 billion in commercial mortgages maturing in 2024 amid falling property values. Among the banks, Goldman Sachs faces the highest projected loan losses in CRE at 15.9%, followed closely by RBC USA, Capital One, and Northern Trust.

Additional Insights
The 2024 tests follow the collapse of mid-sized banks such as Silicon Valley Bank, raising questions about how banks manage rising interest rates. Notably, the tests excluded regional banks, which hold the majority of CRE loans and are subject to less stringent regulations.

JPMorgan Chase’s Review
JPMorgan Chase & Co. has examined the Federal Reserve’s 2024 stress test results, particularly scrutinizing the projections for Other Comprehensive Income (OCI). According to their analysis, the benefit in OCI appears overstated, suggesting that actual stress losses might be higher than those reported by the Federal Reserve. As of March 31, JPMorgan reported a Common Equity Tier 1 (CET1) capital ratio of 15.0%, well above the regulatory requirement of 11.9%.

Key Points
JPMorgan believes the Federal Reserve’s OCI projections overestimate the benefits, leading to an understatement of stress losses. Despite this, JPMorgan maintains a CET1 capital ratio significantly above the required threshold, indicating robust financial health and capital adequacy.

Additional Insights
The Federal Reserve’s stress tests are essential for evaluating the resilience of major banks under adverse economic conditions. They assess various factors, including capital adequacy, to ensure banks can withstand economic shocks. OCI, which includes unrealized gains and losses on certain investments, plays a crucial role in these evaluations. Accurate projections are vital for reliable stress test results, as discrepancies can impact regulatory decisions and market perceptions. Banks with higher stress losses might face increased regulatory scrutiny and capital requirements.

Context and Implications
The Federal Reserve’s annual stress tests are designed to gauge the financial robustness of large banks by simulating adverse economic scenarios. JPMorgan’s analysis of the 2024 results highlights potential discrepancies in the Fed’s projections, which could have significant implications for the banking sector.


In conclusion, the Federal Reserve’s 2024 stress test results underscore the robustness of major US banks in the face of significant economic adversity, particularly within the commercial real estate sector. Despite the severe hypothetical scenarios, including a 40% decline in CRE values, the tested banks have demonstrated their capacity to absorb substantial losses while maintaining adequate capital levels.

However, the concerns raised by JPMorgan Chase regarding the Federal Reserve’s projections on Other Comprehensive Income (OCI) suggest that the actual stress losses could be more substantial than initially reported. This highlights the importance of precise and accurate evaluations in these stress tests, as any discrepancies can significantly influence regulatory actions and market perceptions.

Ultimately, the stress tests serve as a crucial tool for assessing the financial stability of the banking sector, ensuring that banks remain resilient in the face of economic uncertainties. While the results are generally reassuring, ongoing scrutiny and adjustments may be necessary to address potential weaknesses and ensure sustained financial health.

by Steve Macalbry

Senior Editor,


Disclaimer: The author of this article is not a licensed financial advisor. This article is intended for informational purposes only. It should not be considered financial or investment advice. We do not hold any form of equity in the securities mentioned in this article. Always consult with a certified financial professional before making any financial decisions. Growth stocks carry a high degree of risk, and you could lose your entire investment.


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