Fed releases 2025 bank stress test scenarios

By Pete Schroeder

WASHINGTON (Reuters) - The Federal Reserve announced on Wednesday it would be testing big banks against heightened stress in commercial and residential real estate markets as part of the U.S. central bank's annual stress tests.

The Fed added that the annual exams would include an additional exploratory component that would examine shocks in the non-bank sector, as well as the impact of hypothetical shocks of numerous large hedge funds on big bank finances.

The new scenarios largely track with prior year scenarios from the Fed that examine how large banks are situated to weather severe economic downturns, and in turn dictate how much capital they must set aside against potential losses.

In the 2025 version, U.S. unemployment would jump 5.9% to 10%, alongside a 33% decline in home prices and a 30% decline in commercial real estate. Large banks with significant trading operations are also tested against the failure of their largest counterparty.

The Fed also noted on Wednesday that it still plans to pursue changes to reduce the volatility in the results and make the process more transparent. It said it would take more steps soon.

(Reporting by Pete Schroeder; Editing by Will Dunham)