The Federal Reserve released their 2023 Federal Reserve Stress Test and it had some interesting information. You can read the press release here and download the report here. Here is a snippet from the executive summary:
The 2023 stress test shows that the 23 large banks subject to the test this year have sufficient capital to absorb more than $540 billion in losses and continue lending to households and businesses under stressful conditions.
Source: Federal Reserve
We’ll stop at that first sentence and consider that current outstanding consumer loans (e.g. credit card debt) is at $1 trillion dollars.
And total outstanding mortgage debt is about $19.4 trillion dollars.
We haven’t even begun to touch on any of the other types of outstanding debt such as all the derivatives, swaps and collateralize debt that may be impacted by increasing interest rates or other adverse economic activity but it does seem after $540 billion in losses, we’ll all be in trouble.
The report has theoretical bank losses on page 16, table 7. Below is a snapshot with some key highlights from us.
A prudent investor that wants to position themselves to short banks during a crisis would want to carefully review which banks would take the largest losses. A prudent investor would also note where, perhaps, to not keep money during stressful time.
We’ll analyze this further and position our portfolio accordingly so stay tuned, stay profitable and stay solvent…