Federal Reserve to Release 2025 Bank Stress Test Results Amid Ongoing Debate

On June 13, 2025, the Federal Reserve announced it will release the results of its annual bank stress tests on June 27. These tests assess the resilience of major U.S. banks under hypothetical severe economic downturns, ensuring they have adequate capital to continue operations and lending during challenging times. source

The 2025 stress test scenarios include a global recession with heightened stress in both commercial and residential real estate markets, as well as in corporate debt markets. Specifically, the "severely adverse scenario" projects the U.S. unemployment rate rising nearly 5.9 percentage points to a peak of 10%, accompanied by severe market volatility, a widening of corporate bond spreads, and a collapse in asset prices, including about a 33% decline in house prices and a 30% decline in commercial real estate prices. Additionally, the scenario includes global stresses, such as recessions in several other countries, including Japan. source

A total of 22 banks are subject to the 2025 stress tests. These include major institutions such as Bank of America Corporation, Citigroup Inc., JPMorgan Chase & Co., Wells Fargo & Company, The Goldman Sachs Group, Inc., and Morgan Stanley. Banks with substantial trading or custodial operations are also required to incorporate a counterparty default scenario component to estimate potential losses from the unexpected default of the firm's largest counterparty amid an acute market shock. In addition, banks with large trading operations will be tested against a global market shock component that primarily stresses their trading and related positions. source

In recent months, the Federal Reserve has proposed significant changes to its annual stress tests to improve transparency and stability. Key among the reforms is a plan to average stress test results over two years when setting capital requirements and to extend the deadline for banks to adjust their capital plans from October to January. Additionally, the Fed aims to streamline the data collection process without altering the actual capital requirements. These changes follow court rulings that have limited regulatory powers and address long-standing industry complaints about the opaqueness and subjectivity of current tests. Future proposals will include greater public access to and input on the models and scenarios used in testing. source

However, these proposed changes have sparked internal debate within the Federal Reserve. Former regulatory chief Michael Barr criticized the proposed openness, warning it could dilute the stringency of the tests and reduce their effectiveness. Fed Governor Adriana Kugler supported the changes but voiced concern about the equal reliance on outdated and current financial data, suggesting a preference for more recent information to better reflect present economic conditions. source

Additionally, major banks and business groups, including the Bank Policy Institute, the U.S. Chamber of Commerce, and the American Bankers Association, have sued the Federal Reserve, claiming that the annual stress tests conducted by the U.S. central bank violate legal and administrative procedures. The lawsuit argues that the methodology and capital requirements assigned based on hypothetical economic conditions are not transparent or properly administered. The plaintiffs seek greater transparency, including the publication and feedback on the models and scenarios used in these tests, while not aiming to terminate the stress testing program itself. source

The Federal Reserve's stress tests were established in the aftermath of the 2007-2009 financial crisis to ensure that large banks have sufficient capital buffers to withstand economic shocks. The tests evaluate the financial resilience of large banks by estimating bank losses, revenues, expenses, and resulting capital levels under hypothetical recession scenarios. The results of these tests inform regulatory decisions and help ensure that banks can continue to lend to households and businesses even in severe economic downturns. source

The 2025 stress tests are particularly significant given the recent legal challenges and proposed regulatory changes. The outcomes of these tests will not only provide insights into the financial health of large banks but also influence ongoing debates about the transparency and effectiveness of the stress testing process. As the Federal Reserve prepares to release the results on June 27, 2025, stakeholders across the financial industry will be closely monitoring the findings and their potential implications for future regulatory practices.