FED Corrects Stress Test Results, Revises Bank Capital Requirements
FED released corrected stress test results stemming from an error in projected trading losses. Consequently, FED revised the capital requirements for two banks—The Goldman Sachs Group, Inc. and Morgan Stanley. FED identified the error and all results affected by it, corrected those results, and implemented changes to prevent similar errors in the future. The related stress test results documents have also been updated. These documents include results of the Dodd-Frank Act Stress Test (DFAST) for 2020 and results of a sensitivity analysis that explored the vulnerabilities of banks to the downside risks to the economy posed by the COVID-19 outbreak.
FED highlighted that the loss rates for certain public welfare investments made by large banks were initially miscalculated, resulting in an overestimation of hypothetical losses for those investments. The error affected five banks—Citigroup Inc, The Goldman Sachs Group Inc, HSBC North America Holdings Inc, Morgan Stanley, and Wells Fargo & Company. However, the resulting common equity tier 1, or CET1, capital requirements for three firms (Citigroup Inc, HSBC North America Holdings Inc, and Wells Fargo & Company) were unaffected, while the CET1 capital requirements for the remaining two firms were revised. In its review of the loss models used for certain public welfare investments, FED identified other model components that were similarly implemented and has conducted additional reviews, which found no further implementation errors.
Related Links
Keywords: Americas, US, Banking, Stress Testing, Dodd Frank Act, DFAST, Sensitivity Analysis, COVID-19, Stress Test Results, Regulatory Capital, CET1, FED
Featured Experts
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.
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Previous Article
BOM Issues Guideline on Cross-Border Exposure of BanksRelated Articles
APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness
APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).
EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance
The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).
FSB Sets Out Good Practices for Crisis Management Groups
The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.
APRA Penalizes Heritage Bank for Incorrect Reporting of Capital
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
OSFI Releases Annual Report 2021-2022
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
OSFI Updates Timeline for Implementation of Certain Basel Rules
Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.
EC Defers Adoption of Regulatory Standards for Disclosures Under SFDR
EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.
FCA Releases MIFIDPRU Application Forms and Third Set of Rules on IFPR
The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.
APRA Finalizes Capital Adequacy Standards for Banks
The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.
CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.
