State Street : 2025 Annual Stress Test Disclosure
STT
Published on 07/01/2025 at 16:56
State Street Corporation
2025 Dodd-Frank Act Stress Test Disclosure
1
July 1, 2025
Overview of the 2025 Stress Test
The Federal Reserve conducts annual supervisory stress tests on the largest banking organizations (i.e., banking organizations with $100 billion or greater in average total consolidated assets) under its supervision, including State Street Corporation ("State Street"). These forward-looking exercises assess whether such firms have sufficient capital to absorb losses and continue operating during scenario-based, hypothetical stressed economic and financial conditions over a nine-quarter planning horizon.
The 2025 Federal Reserve Stress Test applied to 22 bank holding companies (BHCs) and U.S. intermediate holding companies (IHCs), 10 of which, including State Street, are subject to a Counterparty Default Scenario requirement and therefore must include projected losses and related effects on capital associated with the assumed default of their largest stressed counterparty, determined by applying the Global Market Shock (GMS) specified by the Federal Reserve.
Under the Dodd-Frank Act, State Street and other banking organizations participating in the 2025 Federal Reserve Stress Test are also required to conduct their own stress tests under the same hypothetical scenarios used by the Federal Reserve in its 2025 Federal Reserve Stress Test. For its 2025 Federal Reserve Stress Test, the Federal Reserve used the incurred loss approach for measuring provisions for credit loss, while State Street adopted the current expected credit losses (CECL) accounting standard to estimate credit losses for its own stress tests. In addition, the Federal Reserve assumed an unchanged balance sheet in their projections for the purpose of the 2025 Federal Reserve Stress Test, while in its stress test State Street assumes a dynamic balance sheet informed the methodology described under the "Pre-Provision Net Revenue" (PPNR) capital component on page 10 of this disclosure.
Required Scenarios
As required under the "Supervisory and Company-Run Stress Test Requirements for Covered Companies" Final Rule, and as applied by State Street, a stress test represents a process to assess the potential impact of scenarios (representing hypothetical economic conditions) on State Street's consolidated financial position, consolidated results of operations and regulatory capital over a defined period (known as a "planning horizon"), taking into account State Street's financial condition (as of December 31, 2024 with respect to the 2025 Federal Reserve Stress Test), risks, exposures, strategies and activities.
For the 2025 Federal Reserve Stress Test, State Street was required to execute company-run tests, incorporating hypothetical stress impacts to estimates of its revenues, expenses, trading and counterparty losses, and provisions for credit losses, and the resultant changes in regulatory capital and related capital ratios, over the nine-quarter planning horizon starting on January 1, 2025. To execute the stress tests, State Street applied multiple economic scenarios and parameters, including those prescribed by the Federal Reserve, to its internal stress testing methodologies, models and tools. Although State Street ran stress tests using multiple scenarios, the sections below describe the methodologies used in the stress test as required under the Supervisory Severely Adverse Scenario.
The 2025 Federal Reserve Stress Test Supervisory Severely Adverse Scenario, as prescribed by the Federal Reserve, is characterized by a severe global recession, with prolonged declines in residential and commercial real estate prices, which spill over into the corporate sector and affect investment sentiment. Over the nine-quarter planning horizon, this Supervisory Severely Adverse Scenario includes the following features:
A peak U.S. unemployment rate of 10%;
A U.S. Real GDP contraction of 7.8%;
A decline in 10-year Treasury yields to about 1.0% followed by a gradual recovery to around 1.5%;
An equity market decline of 50%;
From an international standpoint, the scenario features recessions in the Euro area, U.K., Japan, and developing Asia economies
The Global Market Shock factors used for the Counterparty Default Scenario are characterized by expectations for a severe slowdown in the economy leading to increased unemployment and lower inflationary pressures. The expected fall in economic activity leads to equity price declines across global markets, while public equity volatility rises from heightened market uncertainty. Treasury yields fall, particularly in the shorter tenors as inflation expectations decline. The U.S. dollar appreciates against most major currencies, reflecting flight-to-safety considerations. The Japanese yen strengthens against the U.S. dollar as the yen carry trade unwinds. Consistent with expectations for lower demand from a severe recession, commodity prices fall. An increase in anticipated defaults leads to a significant widening in credit spreads.
This scenario, along with the supervisory baseline scenario, is set forth and described in the document titled "2025 Stress Test Scenarios" published on the Federal Reserve's website on February 5, 2025: https://www.federalreserve.gov/publications/files/2025-stress-test-scenarios-20250205.pdf
Assumptions Regarding Capital Actions
All assumptions and results presented in this disclosure document reflect the capital actions prescribed by Section 165 of the Dodd-Frank Act (Dodd-Frank Act prescribed capital actions) as amended by the Federal Reserve's Capital Planning and SCB rule, including:
For each of the quarters of the planning horizon:
no common stock dividends are reflected in the pro forma estimates;
scheduled payments on eligible instruments for inclusion in the numerator of a regulatory capital ratio are included;
no common stock repurchases and redemptions of any capital instrument are included;
no issuances of common stock or preferred stock are reflected in the pro forma estimates; and
projection of post-stress capital ratios does not include capital actions or other changes in the balance sheet associated with any business plan changes.
The tables on this slide and succeeding slides 6 and 7 summarize pro forma estimated results under the Supervisory Severely Adverse Scenario with Dodd-Frank Act prescribed capital actions. The stress projections resulted in a decline in most regulatory capital ratios which utilized Basel III standardized Risk-Weighted Assets (RWA) or Leverage Assets; however, State Street exceeded all Basel III minimum regulatory capital ratio requirements throughout the nine-quarter planning horizon. Changes in regulatory capital were primarily driven by the stressed declines in revenue relative to baseline expectations, counterparty losses, and legal and operational losses.
Actual 4Q24 and projected stressed capital ratios (1Q25 - 1Q27) 3
Regulatory Minimums1
Actual
Stressed Capital Ratios
4Q24
Ending
Minimum2
Common Equity Tier 1 (CET1) Capital Ratio
4.5%
10.9%
13.8%
10.3%
Tier 1 Capital Ratio
6.0%
13.2%
16.5%
12.4%
Total Capital Ratio
8.0%
14.8%
18.0%
13.8%
Tier 1 Leverage Ratio
4.0%
5.2%
6.0%
4.8%
Supplementary Leverage Ratio
3.0%
6.2%
8.2%
6.2%
Actual 4Q24
Projected 1Q27
RWA (billions of dollars)
126.3
106.4
1 Regulatory minimum ratio requirements as prescribed by the Federal Reserve
2 Represents the projected minimum quarter-end ratio at any point during the nine-quarter planning horizon of the supervisory severely adverse scenario
3 All actual and projected capital ratios and RWA data presented above are as-of the relevant quarter-end
Projected cumulative losses, revenue, and net income before taxes over 9 quarters (1Q25 - 1Q27)
Billions of dollars
Pre-Provision Net Revenue (PPNR) 1
3.7
Other Revenue
0.0
Less
Provision for Credit Losses
(0.7)
Realized Gains/(Losses) on Securities
(0.0)
Trading and Counterparty Losses2
(1.0)
Other Gains/(Losses)
(0.4)
Equals
Net Income Before Taxes (NIBT) 1
1.7
1 PPNR is 1.1% and NIBT is 0.5% of the Average Assets. Assets are averaged over the nine-quarter planning horizon
2 A 10% recovery rate was applied, consistent with the Federal Reserve's disclosed methodology
Projected cumulative loan losses, by loan type over nine quarters (1Q25 - 1Q27)
Billions of dollars1
Portfolio Loss Rate2
Loan Losses
0.6
1.7%
First Lien Mortgages, Domestic
-
-
Junior Liens and HELOCs, Domestic
-
-
Commercial and Industrial
0.3
8.1%
Commercial Real Estate
0.1
3.1%
Credit Cards
-
-
Other Consumer
-
-
Other Loans
0.2
0.8%
1 Due to rounding, the sum of the projected loan losses by asset type may not equal the total presented
2 Percentage of average balance of the identified type of loans represented by projected aggregate loan losses. Loan balances are averaged over the nine-quarter planning horizon
Key Drivers of State Street's Projected CET 1 and Tier 1 Leverage Ratios
Supervisory Severely Adverse Scenario with Dodd-Frank Capital Actions (1Q25 - 1Q27)
0.2%
Actual (4Q24)
PPNR (incl.
Trading and
Available for Sale Mark to
Other Capital²
RWA
2025 DFAST (1Q27)
Operational Losses)¹
Counterparty Losses¹
Market (AFS MTM)¹
0.9% 0.1% 0.5% 6.0%
Actual (4Q24)
PPNR (incl.
Trading and
Available for Sale Mark to
Other Capital²
Leverage Exposure
2025 DFAST (1Q27)
Operational Losses)¹
Counterparty Losses¹
Market (AFS MTM)¹
Note: Numbers may not sum due to rounding
1 Items presented above reflected net of tax, as applicable
2 Other capital includes other losses in the Consolidated Statement of Income, Foreign Exchange (FX) translation in Accumulated Other Comprehensive Income (AOCI), Disallowed DTA, Goodwill s Intangibles deductions and net capital distributions. For related assumptions, please refer to "Assumptions Regarding Capital Actions" on page 4 for details
Stress Testing Framework - Risks and Methodologies
State Street has a robust company-wide stress testing program that executes supervisory stress tests, with the program overseen by management and the Risk Committee of its Board of Directors
The stress testing program is structured around State Street's material risk inventory, which is established through the firm's quarterly Material Risk Identification process. Material risks are grouped into top risk categories which serve as an organizing principle for much of State Street's risk management and reporting framework
In connection with the focus on these risks, State Street's internally-developed stress tests incorporate idiosyncratic loss events tailored to its unique risk profile. Due to the nature of State Street's business model and consolidated statement of condition, these key risks may differ from those of a traditional commercial bank
In the normal course of its global business activities, State Street is exposed to a variety of risks; some intrinsic to the financial services industry, and others which are more specific to its business activities
State Street's top risks as identified through its Material Risk Identification process include the following:
Credit and Counterparty Risk;
Liquidity Risk, Funding and Management;
Operational Risk;
Technology and Operational Resiliency Risk;
Market Risk associated with Trading Activities;
Market Risk associated with non-Trading Activities (which State Street refers to as asset and liability management and which consists primarily of interest rate and mark-to-market risk);
Strategic Risk;
Model Risk; and
Reputational, Fiduciary and Business Conduct Risk
Many of these risks, as well as some of the factors underlying each of these risks that could affect our businesses and our consolidated financial statements, are discussed in detail under Item 1A, "Risk Factors" and "Risk Management" within Item 7 of the "Management Discussion and Analysis of Financial Condition and Results of Operations," included in our Annual Report on Form 10-K for the year ended December 31, 2024 on file with the SEC (2024 Form 10-K), as those disclosures may from time-to-time be updated in subsequent filings with the SEC.
Stress Testing Framework - General Description of Methodologies (1/4)
The table below and on the subsequent pages provides a general description of the methodologies used in the Supervisory Severely Adverse Scenario, including those employed to estimate revenues, losses, provision for credit losses, and other components of our capital projections.
Capital Component
General Description of Methodologies
Pre-Provision Net Revenue
PPNR is calculated as fee revenue plus NII minus expenses. The following is a description of the methodologies used to calculate the components of PPNR under the Supervisory Severely Adverse Scenario:
State Street's non-interest revenue includes servicing, management, foreign exchange trading services, securities finance, software and processing fees, and other fee revenue. In most cases, macroeconomic indicators (e.g., equity indices, interest rates, GDP, volatility) identified in the scenario were linked to asset and activity levels through regression-based analysis. In cases where fee revenue lacked sensitivity to the macroeconomic indicators, State Street used empirical analysis in conjunction with qualitative assessments to determine the impact of stress. Non-interest revenue also reflected reduced revenue due to client attrition associated with operational and other idiosyncratic events
State Street's NII is primarily sensitive to changes in the balance sheet due to economic conditions or business actions, movements in interest rates and FX rates, and changes in spreads earned on interest-earning assets or paid on interest-bearing liabilities. In addition, State Street leveraged a combination of subject matter expertise and quantitative approaches using key economic variables, assets under custody and forward interest rates to forecast the balance sheet outlook
State Street's PPNR projections of non-interest expense incorporated a reduction to compensation and employee benefits, transaction processing services, and other expense due to the impact of lower activity levels and/or lower performance. Partially-offsetting these reductions, State Street projected incremental costs related to hypothetical severance and operational risk
Disclaimer
State Street Corporation published this content on July 01, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on July 01, 2025 at 20:55 UTC.