Stress Test Proves Banks Could Continue to Lend During Severe Global Recession

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Stress Test Proves Banks Could Continue to Lend During Severe Global RecessionThe global economy is in a good place right now. It doesn’t appear as though there is any threat of a severe global recession affecting the world in the coming years. But it never hurts to be prepared for a worst-case scenario, which is why the Federal Reserve Board has spent most of the last decade performing periodic stress tests on the biggest bank holding companies in the U.S.

The Federal Reserve Board just released the findings of their latest stress test, and it revealed some great news for the 35 bank holding companies who took part in it.

After running the stress test, the Federal Reserve Board found the banks to be “strongly capitalized” and reported that they would be able to continue to lend money to home and business owners if a global recession started tomorrow.

The scenario that the Federal Reserve Board projected saw the banks taking a hit of almost $600 billion, which would seem as though it would compromise their lending power. It also saw the U.S. unemployment rate jumping nearly 6 percentage points and sitting at 10 percent. But despite these factors, the test found that the 35 bank holding companies have added almost $800 billion as far as common equity capital is concerned since 2009. It would put them in position to deal with a global recession without cutting off their ability to lend to households and businesses.

The good news is that it doesn’t look like the big bank holding companies in the U.S. will have to worry about dealing with this disastrous scenario anytime soon. But the Federal Reserve Board does plan to continue to put stress tests on the bank holding companies moving forward to see how they would react to a global crisis involving the world’s economy. It will serve as a test of where the banks stand and project what might happen in the event of an economic freefall.

At Portfolio Financial Servicing Company, our goal is to play an active role in keeping the American and global economy as strong as it can be. Call us at 800-547-4905 today to take full advantage of the services we can provide.