10 Aug FRB – Announces individual large bank capital requirements – which will be effective on October 1, 2020
August 10, 2020 –
Individual Capital Requirements
Capital requirement framework for large banks with more than $100 billion in total assets. Individual large bank capital requirements are in part determined by the stress test results. The methodology provides risk-sensitive and forward-looking assessment of capital needs.
Table of Capital Components
The FRB provided a table of total common equity tier 1 (CET1) required for each large bank, comprised of several components, which are combined to obtain total capital.
Minimum capital requirements, which are the same for each firm, and are set at 4.5%. Stress capital buffer (SCB), which is based on stress test results, and is at least 2.5%. Capital surcharge only for global systemically important banks (GSIBs), of at least 1%.
Of the 29 banks listed in the table, the lowest total capital requirement is 7%, which applies for 10 banks. Highest is Goldman at 13.7%, with a 6.7% on stress test; with Morgan Stanley at 13.4% with a 5.9% stress test. Stress test capital was highest for foreign banks Deutsche Bank at 7.8% and Credit Suisse at 6.9%.
Buffers for Lending and Distribution
The FRB supports banks that choose to use capital buffers to lend to households, businesses, as well as bank that undertake other supportive actions, in a safe and sound manner. When using their buffers, banks may make capital distributions up to prescribed limits. Distributions are subject to automatic limits in capital rules, as well as any set by the FRB.
5 Remaining Stress Test Results
The FRB also affirmed the stress test results, for five firms that requested reconsideration. These firms were: BMO Financial Corporation, Capital One Financial Corporation, Citizens Financial Group, Inc., Goldman Sachs Group Inc., and Regions Financial Corporation. Reconsideration was by an independent group, separate from the stress testing group. Results were checked for errors and to ensure stress test models, which project loan losses for banks, worked as intended and consistent with the FRB stress test framework.
Federal Reserve to tailor capital requirements to large individual institutions stress test results
For more information, visit www.federalregister.gov