The U.S. Federal Reserve has outlined an easier stress test for America’s banks and other financial institutions this year.
The Fed has released the parameters for its annual stress test showing smaller hypothetical shocks to the U.S. economy that banks must be able to withstand.
Since the Covid-19 pandemic struck in 2020, U.S. lenders had been required to pass onerous stress tests and ensure they have adequate capital reserves to weather major financial crises.
But now, the U.S. central bank appears to be easing up on the banks. The 2025 stress test includes calls for a U.S. jobless rate of 10% and a 33% drop in home prices.
That’s much less dramatic than the stress test scenarios presented to banks in recent years.
In a statement, the Fed said it is taking steps to “reduce the volatility of stress test results and begin to improve model transparency” with the 2025 exam.
The news sent U.S. bank stocks such as JPMorgan Chase (JPM) and Citigroup (C) up as much as 3% in New York trading.
The annual stress tests were first introduced in the wake of the 2008 financial crisis, with the biggest U.S. banks having to undergo annual exams that test their ability to withstand a severe recession while continuing to lend to consumers and businesses.
This year’s changes to the stress test bolster the case made by many on Wall Street that U.S. banks will face a friendlier regulatory environment under President Donald Trump.
By making the stress test less challenging, banks could now be required to hold smaller capital reserves, which would allow them to return more money to shareholders in the form of dividends and share repurchases.
The stock of JPMorgan Chase, the largest U.S. lender, has risen 58% over the past 12 months to trade at $276.90 U.S. per share.
