The Federal Reserve Board ("FRB") reported that the Dodd-Frank Act Stress Test 2021 shows that the 23 participating firms "have sufficient capital levels to absorb losses during stressful conditions." The stress tests involved bank holding companies and U.S. intermediate holding companies with more than $100 billion in total consolidated assets.
The FRB's stress testing hypothetical scenarios, released in February 2021, include (i) the baseline scenario, which, for the United States, is a "moderate economic expansion over the 13-quarter scenario period," and (ii) the severely adverse scenario, which is characterized "by a severe global recession accompanied by a period of heightened stress in commercial real estate and corporate debt markets." Under the severely adverse scenario, the FRB stated that the large firms would experience substantial losses, but would remain "well above their minimum risk-based requirements and could continue lending to businesses and households."
In light of the positive results, the FRB stated that all temporary and additional capital distribution restrictions imposed because of the COVID-19 pandemic will expire on June 30, 2021 (see previous coverage here).
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