New York CNN  —  America’s biggest banks are well positioned to survive a severe recession while continuing to lend to households and businesses, the Federal Reserve said Wednesday in its annual bank resilience test, commonly referred to as a stress test. However, banks could suffer higher losses, if a significant economic downturn were to hit now versus a year ago. As a result of the banking crisis that fueled the Great Recession, the Fed conducts stress tests to monitor and uncover potential signs of weaknesses in the financial system. The tests have taken on an extra layer of importance after the collapse of three US banks sent shockwaves through the banking system last year. The 31 banks required to take the test would lose more money under this year’s hypothetical scenario, which was similar to last year’s, because they’ve taken on more risk while incurring higher expenses, Fed Vice Chair for Supervision Michael Barr said in a statement. The higher interest rate environment we’re currently in has made it riskier, and more costly, for banks to make loans, which can depress their profitability. One area that weighed on banks more compared to last year is credit card debt, which recently hit a record high. Additionally, a higher percentage of people are making late payments. Both resulted in higher projected credit card losses. At the same time, banks’ income from fees was lower, giving them less of a buffer to absorb those losses. “The goal of our test is to help to ensure that banks have enough capital to absorb losses in a highly stressful scenario. This test shows that they do,” Barr said.