The Federal Reserve says all of the country’s big banks passed this year’s stress test, in which regulators create a scenario where unemployment surges and banks lose hundreds of billions of dollars in loans. They then ask what that would do to a bank’s balance sheet.
These hypothetical “recessions” were enacted as part of Dodd-Frank and meant to keep the global economy from tumbling into another crisis.
The fear is that our banks are so interconnected now that even a small crisis could bring down the financial system.
Regulatory advocate Marcus Stanley says these stress tests have created a banking system less susceptible to crisis but, "If these stress tests are weakened in the future, they are going to become significantly less reliable. And even today, one needs to have concerns about them.'"
Both the White House and congressional Republicans have plans to reduce the rigor of the tests. This was the first year that all the country's big banks passed since the recession. Those banks represent about 75 percent of all U.S. assets.
