The U.S. Federal Reserve is due to release the results of its annual bank health checks on Wednesday at 4:30 p.m. ET (2030 GMT). Under the stress test exercise, the Fed tests big banks' balance sheets against a hypothetical severe economic downturn, the elements of which change annually.
The Fed changes the scenarios each year. They take months to devise and test a snapshot of banks' balance sheets at the end of the previous year. That means they risk becoming outdated.
The 2023 tests were devised before this year's banking crisis in which Silicon Valley Bank and two other lenders failed. They found themselves on theof Fed interest rate hikes, suffering large unrealized losses on their U.S. Treasury bond holdings which spooked uninsured depositors. For example, the 2022 stress test envisioned a 5.8 percentage point jump in unemployment under a "severely adverse" scenario. In 2023, that increase is 6.5 percentage points, thanks to rising employment over the past year.
In addition, banks with large trading operations will be tested against a "global market shock," and some will also be tested against the failure of their largest counterparty.
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