Fed Announces Capital Buffers for Big Banks

Based on the latest stress test results, Goldman Sachs is required to have the largest buffer against losses, followed by Morgan Stanley.
Matthew HellerAugust 6, 2021

The U.S. Federal Reserve has announced the capital requirements for banks that underwent the most recent stress tests, with Goldman Sachs having to hold the largest buffer against losses.

The capital requirements ensure that the 34 large banks tested will hold roughly $1 trillion in high-quality capital — enough to survive a severe recession and still be able to lend to households and businesses, the Fed said.

Based on the stress test results, Goldman is required to have a total common equity tier 1 buffer of 13.4%, followed by Morgan Stanley (13.2%) and HSBC (12.0%). Other banks with capital requirements of more than 10% include DWS, UBS, Credit Suisse, BNP Paribas, and Citigroup.

According to Reuters, “The ratios are part of the new ‘stress capital buffer’ regime established by the Fed, which allows the central bank to set custom capital requirements for each bank, depending on how severely each firm faced losses under the annual stress test.

“The June results found that even in a severe downturn, banks would have more than enough capital to stay above regulatory minimums — a finding that led the Fed to lift restrictions on stock buybacks and dividend payouts that had been put in place at the beginning of the coronavirus pandemic,” Reuters said.

The new capital requirement combines the 4.5% minimum capital ratio for all large banks with a custom stress capital buffer.

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