The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Stephen Gandel

NEW YORK, June 29 (Reuters Breakingviews) - How much would Wall Street lose if markets plunged 58%? According to the Federal Reserve, not much. The U.S. central bank’s latest stress tests project that JPMorgan JPM.N, Bank of America BAC.N, Citigroup C.N, Morgan Stanley MS.N and Goldman Sachs GS.N would collectively lose only about $30 billion on roughly $3 trillion of market-exposed assets in a downturn resembling the 2008 financial crisis. The result dovetails with the industry's own arguments that they’re now more middlemen than risk-takers. As trading desks grow to record size, however, it strains credulity.

Traders once dominated Wall Street, until post-crisis regulations curtailed gambling with bank balance sheets. The tide is now shifting back. JPMorgan’s trading assets topped $1 trillion in the first quarter. At Goldman Sachs, the equities trading division, according to a recent Bloomberg report, is on pace to generate roughly $10 billion of revenue in the first half of 2026, up 20% from the prior year, which was up 30% from the year before that.

This isn’t quite a return of the reckless old days. With outfits like Citadel Securities and Jane Street now playing a larger role in markets, bank executives argue they are mainly intermediaries, buying and selling securities for clients, and often financing those transactions. The result, they say, is a much larger business that no longer carries so much risk.

For years, regulators resisted the logic. In a true financial panic, major client losses could ultimately flow back to their financiers. The collapse of hedge fund Archegos in 2021, for instance, inflicted more than $10 billion of losses on banks. Moreover, much of the de-risking that executives cite happened years ago. The incredible growth of trading operations more recently may present new dangers.

Take the banks’ own measure of how much they could lose on any given day, called Value-at-Risk, or VaR. It dropped dramatically after the financial crisis, but has ticked up since. Assume lenders lost the maximum foreseen amount on every trading day last year, and the damage would run to $83 billion, about what the Fed predicted a few years ago. Stress tests are now rosier, however, while assets have grown.

Technical changes explain some of the differences. The Fed shortened the assumed duration of market stress and reduced projected counterparty losses, adjustments that indicate a warming to the idea that Wall Street risks only a tiny fraction of the market activity they handle. It is one thing for masters of the universe to believe they can't lose. Far more concerning is when regulators do, too.

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CONTEXT NEWS

The U.S. Federal Reserve on June 24 released the results of its annual stress test of the nation’s largest banks, scrutinizing their ability to withstand a hypothetical severe recession in which unemployment rises to 10%, house prices fall 30% and the stock market loses nearly 60% of its value. All 32 lenders passed.