Bank stocks pop after Fed releases ‘easier’ 2025 stress test, plans to make exam more predictable

Bank shares rose Thursday after the Federal Reserve released parameters for its annual industry stress test showing smaller hypothetical shocks to the U.S. economy than in previous years.

While still challenging, with U.S. joblessness jumping to 10% and a 33% drop in home prices, the 2025 exam has smaller spikes in unemployment and smaller declines in stock and real estate values than previous versions, Jason Goldberg of Barclays said Thursday in a note titled “2025 Stress Test: Scenarios Easier than Past Two Years.”

The Fed will soon take steps to “reduce the volatility of stress test results and begin to improve model transparency” in the 2025 exam, the regulator said in a statement released Wednesday after the close of regular trading.

Shares of Citigroup jumped 2.9% in midday trading, while Goldman Sachs, Morgan Stanley and Bank of America each rose at least 1.5%. Big banks gained more than smaller lenders, with the KBW Bank Index rising 1.2% compared with the 0.9% gain of the S&P Regional Banking ETF.

The stress test changes bolster the case made by Wall Street analysts that big U.S. banks will face a friendlier regulatory regime under the Trump administration. Since the aftermath of the 2008 financial crisis, the biggest U.S. banks have had to undergo annual exams that test their ability to withstand a severe recession while continuing to lend to consumers and businesses.

Banks have complained for years that the annual stress tests were opaque and unfairly administered, and industry trade groups sued the Fed in December over the exam.

By making the latest iteration of the test both less challenging and more predictable, banks could hold smaller capital cushions later this year, according to Bank of America analyst Ebrahim Poonawala.

“The 2025 stress test scenario, broadly better vs last year, increases our confidence that banks should begin to see relief on regulatory capital requirements, given our expectations for a shift to a balanced, transparent, and more predictable regulatory regime,” Poonawala wrote Thursday in a note.

— CNBC’s Michael Bloom contributed to this report.