Federal Reserve announces post-stress test capital ratios for large banks
The U.S. Federal Reserve announced on Monday how much each large bank that underwent its 2020 stress tests will have to hold in additional capital.
The results mark the first time the Fed has given out custom capital requirements for each bank under its new “stress capital buffer,” and takes effect on Oct. 1. Goldman Sachs and Morgan Stanley were ordered to hold the most capital of the 34 firms tested, with ratios of 13.7% and 13.4% respectively.
The custom capital requirements follow stress test results released in June, which found that banks would weather heavy capital losses should the economic fallout from the coronavirus pandemic drag on or worsen. The Fed ordered banks to cap dividend payments and bar share repurchases until at least the fourth quarter to ensure they have sufficient cushions.
The new capital ratio combines the minimum capital requirements of 4.5% and the new “stress capital buffer,” which is determined by how each bank fared under a hypothetical severe economic downturn. That buffer is at least 2.5%, but was highest for Deutsche Bank’s U.S. operations at 7.8%.
The nation’s largest banks also face an additional capital surcharge for their predominant role in the financial system, ranging from 1% to 3.5% for JPMorgan Chase, the nation’s biggest bank.
The Fed also announced that it had reaffirmed the stress test results for five banks that requested reconsideration: BMO Financial Corp [BMOHF.UL], Capital One Financial Corp, Citizens Financial Group Inc, Goldman Sachs and Regions Financial Corp. The Fed said the additional review found its stress test models worked as intended and there were no errors.