FED Announces Capital Requirements for Large Banks
FED announced individual capital requirements for 34 large banks and these requirements go into effect on October 01, 2020. The minimum capital requirements for a large bank comprise the minimum capital requirements, the stress capital buffer, and, if applicable, a capital surcharge for global systemically important banks, or G-SIBs. As per the announcement, the minimum common equity tier 1 capital ratio is the same for all banks at 4.5% and the stress capital buffer, which is determined from the stress test results, ranges from 2.5% to 7.8%. Finally, the G-SIB surcharge that has been prescribed for eight banks ranges from 1% for State Street Corporation to 3.5% for JPMorgan Chase & Co. Overall, Goldman Sachs Group, Inc. and Morgan Stanley have the highest capital requirements at 13.7% and 13.4%, respectively.
FED also affirmed the stress test results for five firms that requested reconsideration. Those firms are BMO Financial Corporation, Capital One Financial Corporation, Citizens Financial Group, Inc., The Goldman Sachs Group Inc., and Regions Financial Corporation. The reconsideration process involved an independent group—separate from the stress testing group—that analyzed and evaluated the results. The results were checked for errors and to ensure that the stress test models, which project the loan losses for banks, worked as intended and were consistent with the stress test framework of FED. As FED is done with input gained from a variety of stakeholders and events, including its annual stress test model symposium, FED will assess the information learned from the reconsideration process and use it to continue improving its stress testing methodology.
Related Link: Press Release
Effective Date: October 01, 2020
Keywords: Americas, US, Banking, Regulatory capital, CET1, Stress Capital Buffer, G-SIB Surcharge, Stress Testing, Basel, FED
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Laurent Birade
Advises U.S. and Canadian financial institutions on risk and finance integration, CCAR/DFAST stress testing, IFRS9 and CECL credit loss reserving, and credit risk practices.
Previous Article
Bundesbank Publishes Deactivated Validation Rules for ReportingRelated Articles
PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA Finalizes Standards on Methods of Prudential Consolidation
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA Updates List of Other Systemically Important Institutions in EU
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS Report Concludes Basel Risk Categories Can Capture Climate Risks
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities Welcome FSB Review of their Remuneration Regime
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA Letter on Addressing Risks from Use of Deposit Aggregators
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA to Amend Banking Act and Rules in Coming Months to Transpose CRD5
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
EC Delegated Regulation on Specialized Lending Exposures Under CRR
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI Proposes to Enhance Assurance Expectations for Basel Returns
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB Issues Results of Benchmarking Analysis of Recovery Plans of Banks
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.
