Fed says banking system strong, resilient

The Federal Reserve on Wednesday said it had conducted its annual bank stress test and found that large banks are well-positioned to weather a recession. All 23 banks the Fed tested withstood a hypothetical recession, despite total projected losses of $541 billion. The computer simulation found that banks could still lend money to businesses and households amid lower real estate and housing prices and higher unemployment.

How reliable is the annual stress test? Federal Reserve Vice Chair for Supervision Michael S. Barr said the test only measured strength in one way and that officials needed to “remain humble” about their understanding of how risks could arise. The Fed began stress-testing banks after the 2008 financial crisis to ensure they could withstand similar shocks in the future.

Dig deeper: Listen to Nick Eicher and David Bahnsen’s latest economic conversation on The World and Everything in It podcast.