News

Fed publishes big-bank capital requirements tied to stress test buffer

WASHINGTON — The Federal Reserve on Monday published capital requirements for the largest banks it supervises that for the first time will incorporate a so-called stress capital buffer.

Goldman Sachs will have to comply with the highest capital requirements out of all of the 34 banks, with a common equity tier 1 requirement of 13.7%. The new requirements will kick in Oct.1 .

The common equity tier 1 capital requirement is comprised of the minimum CET1 capital ratio of 4.5%, which applies to each of the 34 banks, combined with the stress capital buffer requirement and, if applicable, a surcharge for the eight U.S.-based global systemically important banks.

The stress capital buffer — which the Fed finalized in March — is calculated as the difference between a bank’s starting and projected capital ratios under the “severely adverse” stress test scenario. The buffer also factors in a bank’s common stock dividends as a percentage of risk-weighted assets.

Goldman Sachs will have to comply with the highest capital requirements out of all of the 34 banks, with a common equity tier 1 requirement of 13.7%.

Bloomberg News

Morgan Stanley will be required to comply with the second-highest capital requirements after Goldman Sachs with a CET1 requirement of 13.4%. DB USA — an affiliate of Deutsche Bank — has the highest capital requirement among non-U.S. GSIBs at 12.3%.

The lowest capital requirements are 7% for American Express, DWS USA (another arm of Deutsche Bank), Fifth Third Bancorp, Huntington Bancshares, KeyCorp, M&T Bank, Northern Trust, PNC Financial Services Group, Santander Holdings USA, TD Group and U.S. Bancorp.

State Street Corp. has the lowest capital requirements out of the eight GSIBs at 8%, followed by Wells Fargo at 9%.

However, the final capital requirements could be subject to change. The Fed is conducting a mid-cycle stress test this year due to the coronavirus pandemic, and it has left open the possibility that a firm’s stress capital buffer could be recalculated based on the results of the second round of stress tests.

Although the mid-cycle stress tests will likely not be conducted before the capital requirements are set to take effect Oct. 1, the Fed could update a firm’s stress capital buffer requirement and require a firm to comply with a new requirement at a later date.




Source link

Back to top button
SoundCloud To Mp3