The Federal Reserve Board (the Fed) announced the individual capital requirements for all large banks, effective Oct. 1.
Under the Fed’s capital framework for bank holding companies, capital requirements are determined in part by the supervisory stress test results for covered savings and loan holding companies, as well as U.S. intermediate holding companies with $100 billion or more in total consolidated assets.
The stress tests ensure large banks are sufficiently capitalized and able to lend to households and businesses even in a severe recession. They evaluate the financial resilience of banks by estimating losses, revenues, expenses, and resulting capital levels under hypothetical economic conditions.
Under the capital requirements, each bank’s total common equity tier 1 capital requirement is made up of several components, including:
- The minimum capital requirement, which is the same for each firm, is 4.5 percent.
- The stress capital buffer requirement, which is determined from the stress test results, is at least 2.5 percent.
- If applicable, a capital surcharge for global systemically important banks, which is updated in the first quarter of each year.
If a bank’s capital dips below its total requirement, it is subject to automatic restrictions on both capital distributions and discretionary bonus payments. The Fed received no requests for reconsideration from any bank.