Following the stress test results in June 2022, the Board of Governors of the Federal Reserve System (FED) announced the individual capital requirements for 34 large banks, with the requirements coming into effect on October 01, 2022.
The capital requirements are intended to ensure that the large banks tested will hold roughly USD 1 trillion in high-quality capital—enough to survive a severe recession and still be able to lend to households and businesses. The total common equity tier 1, or CET1, capital requirements for each bank is made up of several components, including:
- the minimum capital requirement, which is the same for each bank and is 4.5%
- the stress capital buffer requirement, which is determined from the stress test results and is at least 2.5%
- if applicable, a capital surcharge for global systemically important banks (G-SIBs), which is at least 1.0%
FED states that a bank whose capital dips below its total requirement will be subject to automatic restrictions on both capital distributions and discretionary bonus payments. FED also affirmed the stress test results for two banks that requested reconsideration and these banks are Bank of America Corporation and Huntington Bancshares Incorporated. 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 and revenues for banks under the hypothetical stress scenario, worked as intended and were consistent with the principles described in the FED's Stress Testing Policy Statement.
Keywords: Americas, US, Banking, Large Banks, Regulatory Capital, Basel, Stress Testing, G-SIBs, CET1, SCB, Stress Capital Buffer, FED
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