Fed sets final capital requirements for large banks, effective Oct. 1

The Federal Reserve Board recently announced the final individual capital requirements for all large banks, effective on Oct. 1.

The capital requirements for large banks are informed by the Fed’s stress test results, which provide a forward-looking assessment of capital needs.

The minimum capital requirement, which is the same for each bank, is 4.5 percent. The additional stress capital buffer requirement is based in part on the stress test results and is at least 2.5 percent. After that, if applicable, a capital surcharge for the largest and most complex banks is added to account for the overall systemic risk of each of these banks.

If a bank’s capital dips below its total requirement, the bank is subject to automatic restrictions on both capital distributions and discretionary bonus payments.

In addition, the Fed board announced that it had modified the stress capital buffer requirement for Goldman Sachs, after the firm’s request for reconsideration.

Based on an analysis of the additional information, the board determined it would be appropriate to adjust the treatment of historical expenses incurred by the bank due to the non-recurring nature of those expenses. As a result, the bank’s stress capital buffer requirement has been adjusted to 6.2 percent from a preliminary 6.4 percent.

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