WASHINGTON—The Federal Reserve said it would examine how exposed the largest U.S. banks are to “risky corporate borrowers” in its next round of stress tests, reflecting regulators’ growing concern about lending to companies with high debt levels.
The Fed released the details Thursday of the hypothetical market and economic conditions the banks must be able to withstand as part of the annual tests, which examine a bank’s ability to keep lending during a downturn.
As in previous years, the 2015 tests will include a sharp increase in unemployment—to 10% in 2016—and a significant retraction in economic growth. But the next round of the Fed’s “severely adverse” scenario includes a worse deterioration in the financial condition of large corporations, reflected by rising corporate-bond yields, especially for companies with high debt levels. Banks must show they can withstand losses from loans extended to those companies.