Lower capital hits signal easing regulations under Trump
America’s 22 largest banks, including JPMorgan Chase, Bank of America, and Goldman Sachs, passed the Federal Reserve’s 2025 stress test, clearing the way for potential dividend hikes and share buybacks. The test results, released Friday, show that even under a hypothetical severe recession, these institutions remain well capitalized.
The Fed’s scenario simulated a sharp downturn, with unemployment soaring to 10%, GDP plunging 7.8%, and housing prices falling 33%. Despite these conditions, banks would lose over $500 billion but face a smaller hit to capital compared to previous years. The aggregate Tier 1 capital ratio would fall by 1.8 percentage points—less than the 2.8-point decline in 2024’s test.
“Large banks remain well capitalised and resilient to a range of severe outcomes,” said Fed Vice Chair for Supervision Michelle Bowman. The Fed noted that the relatively modest impact reflects banks’ improved profitability and adjustments in measuring private equity risks.
Shift toward bank-friendly oversight
This year’s stress test was designed with a less severe downturn than last year’s, reflecting a regulatory shift following President Donald Trump’s return to office. Regulators have moved to reduce volatility in the testing framework, promising greater transparency and a more stable approach through a two-year averaging method.
Under this proposed approach, capital hits could rise slightly to 2.3%, but remain within manageable levels. Bowman defended the change as a way to “address the excessive volatility in the stress test results.”
Deutsche Bank’s U.S. unit recorded the largest hypothetical capital decline at over 12%, followed by UBS’s and RBC’s U.S. arms. Despite this, all institutions met regulatory minimums.
Dividend plans and regulatory outlook
Banks are expected to announce updated capital requirements and shareholder return plans early next week. These may include increases in dividends and stock repurchase programs, given the positive results.
The Fed’s stress tests have long been a cornerstone of post-crisis financial oversight. But Trump-appointed regulators are now focused on scaling back capital requirements. This week, the Fed and other agencies proposed cutting the enhanced supplementary leverage ratio, a key constraint on big banks’ balance sheets.
These regulatory relaxations are part of a broader Trump administration agenda to reduce barriers for financial institutions and promote growth, especially in sectors tied to infrastructure, energy, and AI.
