The country's biggest banks will have to pass stress tests this year in which they are subjected to a hypothetical crisis in which unemployment spikes, the stock market collapses, and housing prices tumble.
The Federal Reserve released the terms of the stress tests, which will apply in full to the 18 biggest banks, on Thursday, saying that they will "help make sure that banks will be able to lend to households and businesses even in a serious recession." The results will come by the end of June, the Fed said.
Last year was the first year that all big banks cleared the stress tests, which have been imposed in the wake of the 2008 financial crisis and that regulators have said are a key part of ensuring the safety of the financial system.
This year, the imagined crisis will be worse, according to the Fed. Specifically, the central bank will test what would happen to the banks' balance sheets in a crisis scenario in which the economy contracts 7 percent, and unemployment rises to 10 percent. At the same time, stock markets would collapse by 65 percent and housing prices would drop 30 percent, while Europe and Japan fall into a recession.
In comparison, stock prices fell about 50 percent and home prices plunged around 30 percent as the housing bubble collapsed.
