The latest round of bank stress tests highlights the relative resilience of U.S. regional banks over the big Wall Street firms in a severe economic stress scenario, Fitch Ratings reports.

The rating agency says that the stress tests administered by the U.S. Federal Reserve Board, which analyze the ability of 18 large U.S. financial institutions to absorb severe economic and market pressure, support the view that most banks’ capital and liquidity positions are strong enough to withstand heavy losses over a prolonged period.

Fitch says that the adverse economic scenario applied in the tests appears quite onerous, including a sharp economic contraction, rising unemployment, a 20% fall in housing prices and a 50% drop in stock prices. Under this scenario, Fitch reports that the large regional and custodial banks saw less significant declines in projected Tier 1 capital ratios.

“The relative strength of these institutions reflects the smaller size of their trading operations and what appears to be relatively harsh market risk scenarios applied to the trading and derivative books of the largest U.S. institutions,” it notes.

Whereas, the projected risk-based capital ratios for the largest Wall Street banks were affected significantly by the much higher risk-weighted assets assumed under the new capital rules, it notes. “The big six banks also faced a heavier burden as a result of the time horizon and scope of the global market shock used in the severely adverse case,” it says. “The global market stress was applied early in the testing horizon, imposing larger losses on trading banks and magnifying declines in capital relative to the other banks. Trading, private equity and derivative positions of the big six banks were subject to this instantaneous shock.”

Fitch notes that results from another round of capital adequacy tests, which factor in banks’ planned capital actions, will be released on March 14. Based on the results of the first round of tests, Fitch says it expects most institutions to meet the Fed’s minimum capital requirements under that test.