ISTANBUL

The US Federal Reserve on Wednesday introduced the hypothetical scenarios for its annual stress test, which determines that large banks can lend to individuals and companies even during a recession.

"The Board released two hypothetical elements designed to probe different risks through its 'exploratory analysis' of the banking system. The exploratory analysis will not affect bank capital requirements," the statement said.

By projecting losses, net revenue, and capital levels — which act as a buffer against losses — under fictitious recession scenarios that span two years into the future, the annual stress test assesses the resilience of big banks.


In the 2025 scenario, US unemployment would rise 5.9% to reach 10% with a 33% decline in home prices and a 30% decline in commercial real estate. Large banks with considerable trading operations are also exposed to the failure of their main counterparty.