The Federal Reserve released the stress test result at the end of Tuesday and concluded that 15 of the 19 biggest financial institutions in America would be able to handle an extreme financial circumstance. The circumstance is defined as 13% unemployment rate, 50% drop in the stock market and 21% further decline in the housing market. From the report card this time, regional banks have the weakest real estate portfolio while two of the national banks fell short on the business loan segment. Others passed with flying colors. The Fed usually considers any bank with a tier 1 common equity ratio above 5% to be healthy. Tier 1 capital consists of the most liquid assets and when comparing this number against the total risk-weighted assets, it gives us a key measure of a bank’s overall condition. The Fed wants to emphasize the stress test is only an extreme negative scenario and doesn’t portray the outlook of our economy. And yes, it’s about time for another round of examination like this because it has been a few years since the last release of banks’ health diagnosis.