The Federal Reserve released its 2026 Dodd-Frank Act Stress Test (DFAST) results on June 24, 2026, and the headline number is striking: all 32 large U.S. banks subjected to the exercise would have enough capital to absorb roughly $708 billion of hypothetical losses in a severe recession and keep lending. The aggregate Common Equity Tier 1 (CET1) ratio dips from 12.8% to a 11.2% minimum, well above the 4.5% regulatory floor.
Vice Chair for Supervision Michelle W. Bowman summarized the result bluntly: “Today’s results underscore the strength of the banking system.”
The 2026 severely adverse scenario
Each year the Fed designs a hypothetical recession and runs every covered bank’s balance sheet through it. The 2026 “severely adverse” scenario is darker on real-estate and corporate-credit stress than it has been in years:
| Variable | 2025 scenario | 2026 scenario |
|---|---|---|
| Unemployment rate (peak) | 10.0% | 10.0% |
| Real GDP (peak-to-trough) | −7.8% | −4.6% |
| House prices | −33% | −30% |
| Commercial real estate prices | −30% | −39% |
| BBB-bond spread (widening) | +3.9 pp to 5.0% | +4.7 pp to 5.7% |
| 10-year Treasury yield (trough) | 1.0% | 2.3% |
| Equity prices | −50% | −58% |
Two things changed direction this year. Commercial real estate takes a bigger hit (−39% vs −30%), and the credit-spread shock is wider (+4.7 percentage points to 5.7%). Meanwhile, the rate-cut response is smaller — the 10-year Treasury only falls to 2.3% versus 1.0% last year — which limits the unrealized gains banks book on their available-for-sale (AFS) bond portfolios.
The $708 billion loss decomposition
Of the $708 billion in projected losses across the 32 banks, $625 billion (89%) is loan losses. Credit cards dominate: $203 billion of losses at a 17.1% loss rate, which is roughly 29% of the entire stressed loss pile. Commercial & industrial loans contribute another $158 billion at a 9.0% loss rate. Commercial real estate adds $77 billion at 8.8%.
Trading and counterparty losses — only relevant for the 10 banks with substantial trading, processing, or custody operations — add $37 billion, with an additional $39 billion in other losses and $7 billion in securities losses.
The net result: aggregate pre-provision net revenue of $719 billion is almost exactly offset by provisions ($635 billion) plus the other loss buckets, leaving the 32 banks with just $1.2 billion of pre-tax net income across nine quarters. Strikingly, 17 of the 32 banks have negative pre-tax income in the scenario; the range spans from −3.6% to +7.4% of average assets.
Why this year’s capital hit was the smallest in seven years
The 1.6 percentage-point aggregate CET1 decline is the smallest since the Fed started publishing the current series. The Fed’s own decomposition explains the year-over-year change versus the 2025 result (which had a 1.8 pp decline):
- Loan loss provisions: −0.2 pp (worse) — bigger 2025 loan books (notably credit cards) and a harsher CRE / corporate-credit scenario push projected losses up.
- Unrealized gains on AFS securities: −0.2 pp (worse) — the smaller rate-cut path in this year’s scenario yields fewer mark-to-market gains on bond portfolios.
- Net interest income: +0.5 pp (better) — banks’ actual 2025 NII improved on loan growth, and higher rate levels in the scenario flatter projections.
- Other: +0.1 pp.
In short: provisions and AFS marks hurt, but stronger ongoing net interest income did the heavy lifting.
Bank-by-bank stressed minimum CET1
The 32 banks vary widely. Charles Schwab tops the list at a 32.2% stressed CET1 minimum — a structural artifact of Schwab’s deposit-heavy, low-risk-asset model. At the other end, First Citizens (6.7%), Ally Financial (7.8%), and HSBC North America (8.1%) show the thinnest stressed buffers, but all three still finish above the 4.5% regulatory minimum.
| Bank | Risk-Based Cat. | Stressed Minimum CET1 |
|---|---|---|
| Ally | IV | 7.8% |
| American Express | III | 9.7% |
| Bank of America | I | 9.9% |
| Bank of NY-Mellon | I | 11.8% |
| Barclays US | III | 12.3% |
| BMO | III | 10.1% |
| Capital One | III | 11.0% |
| Charles Schwab Corp | III | 32.2% |
| Citigroup | I | 10.3% |
| Citizens | IV | 8.6% |
| DB USA | III | 14.4% |
| Fifth Third | IV | 9.7% |
| First Citizens | IV | 6.7% |
| Goldman Sachs | I | 11.4% |
| HSBC | IV | 8.1% |
| Huntington | IV | 9.3% |
| JPMorgan Chase | I | 12.6% |
| KeyCorp | IV | 9.9% |
| M&T | IV | 9.2% |
| Morgan Stanley | I | 12.5% |
| Northern Trust | II | 12.3% |
| PNC | III | 10.3% |
| RBC USA | III | 13.7% |
| Regions | IV | 10.3% |
| Santander | IV | 11.7% |
| State Street | I | 10.8% |
| Synchrony Fncl | IV | 12.5% |
| TD Group | III | 14.0% |
| Truist | III | 9.7% |
| UBS Americas | III | 15.3% |
| US Bancorp | III | 9.8% |
| Wells Fargo | I | 9.2% |
| Aggregate | — | 11.2% |
| Regulatory minimum CET1: 4.5%. All 32 banks remained above the minimum throughout the nine-quarter projection. | ||
What it means for buybacks, dividends, and bank stocks
The numbers above feed directly into each bank’s Stress Capital Buffer (SCB), the firm-specific add-on to the 4.5% CET1 minimum. But this year the SCB math is on hold: in February 2026, the Board voted to keep current SCB requirements in place until 2027, while it digests public comment on (1) two-year averaging of stress test results and (2) more transparent model disclosure. That means investors can read the 2026 numbers as a clean signal of underlying balance-sheet resilience, but the headline result will not mechanically reset capital requirements this year.
Practically, the message to capital-markets desks is: the largest U.S. banks are entering the second half of 2026 with comfortable CET1 buffers and a regulator who is publicly emphasizing soundness. Buyback and dividend capacity for the biggest names is largely a function of last year’s SCB, not today’s print. The individual capital requirements release alongside today’s results details bank-by-bank requirements.
Caveats worth keeping in mind
- The sample changed. 32 banks this year vs 22 in 2025, because Category IV banks rotate in every other year. Aggregate comparisons aren’t strictly apples-to-apples.
- Models are out for public comment. The Fed kept supervisory models largely unchanged from 2025 specifically because the framework is mid-revision. Future cycles could produce materially different numbers on the same balance sheets.
- Static-balance-sheet assumption. The exercise assumes banks neither grow nor shrink risk-weighted assets through the scenario — useful for comparability, but not a real-world projection.
Sources
- Federal Reserve press release: “Federal Reserve Board releases results of 2026 stress test,” June 24, 2026.
- 2026 Dodd-Frank Act Stress Test Results (full report, PDF).
- Federal Reserve press release: “Board finalizes hypothetical scenarios… votes to maintain current stress test-related capital requirements until public feedback can be considered,” February 4, 2026.
- 2026 Supervisory Stress Test Scenarios (PDF).
- Federal Reserve stress test publications archive.
Disclosure: This article was produced with AI assistance and reviewed before publication. It is for informational purposes only and is not investment advice.