Top Banks’ Capital Buffers Revealed

The Federal Reserve Board has announced the individual capital requirements for the largest banks in the US.

The requirements, which will apply to all bank holding companies and US intermediate holding companies with $100 billion or more in total consolidated assets, will come into effect on October 1.

The capital requirements will ensure that the large banks will hold $1 trillion in high-quality capital between them, enough to ensure their survival in a severe recession and retain their ability to lend to households and businesses.

The results of the Board’s stress test, carried out earlier in the year, provided a “risk sensitive” and “forward-looking” assessment of capital needs, the Fed said.

The common equity tier 1 (CET1) capital requirements have several components: the minimum 4.5% capital requirement, which applies to every firm; a stress capital buffer of at least 2.5% and applied based on stress test results; and a capital surcharge for globally systemically important banks of at least 1%.

The banks with the highest capital requirements include Goldman Sachs (13.4%), Morgan Stanley (13.2%), HSBC (12%), DWS USA (11.7%), Credit Suisse (11.4%) and JP Morgan (11.2%).

Meanwhile, France-headquartered BNP Paribas will have a capital requirement of 10.9% for its US operations, and UK-based Barclays’ requirement is 8.1%. American Express and Santander will have the lowest capital requirement at 7% each.

HSBC requested a reconsideration on its stress test results. Though the reconsideration process, which involves an independent group, affirmed the results for HSBC, the Fed told its staff to conduct a closer examination on the issues raised during the reconsideration process, to improve the stress test methodology in subsequent years.

The figures were published as the Fed also revealed that its stress test found that the largest banks would remain resilient during a severe recession. Last month, US regulators lifted temporary restrictions on shareholder payouts introduced during the pandemic, sparking banks including Wells Fargo, Bank of America, US Bancorp and JP Morgan to announce increases to their quarterly dividends.