Fed to introduce capital restrictions on large banks
Banks with capital dipping below total requirements will become subject to automatic restrictions on both capital distributions and discretionary bonus payments
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- Written by Banking Exchange staff
The Federal Reserve Board is placing individual capital requirements on large banks, including BNY Mellon, Morgan Stanley and Northern Trust, effective from October 1, which will see some banks become subject to restrictions.
The Fed defines large banks and financial institutions as US firms with assets of $100bn or more.
The Fed’s Large Banks Capital Requirements table shows each bank's total common equity tier 1 capital requirement, which is made up of several components. This includes the minimum capital requirement, which is the same for each firm at 4.5%, and the stress capital buffer requirement, which is determined from stress test results.The latter is at least 2.5%.
If applicable, a capital surcharge for global systemically important banks (G-SIBs) will be put in place.
This will be updated in the first quarter of each year to account for the overall systemic risk of each G-SIB, according to the Fed.
The Fed’s announcement of the individual capital requirements follows on from its stress test earlier this year.
The stress test results played a hand in determining the large bank capital requirements, which provide a risk-sensitive and forward-looking assessment of capital needs.
The Fed also affirmed the stress test results for two firms — Bank of America Corporation and Huntington Bancshares Incorporated — that requested reconsideration.
An independent group conducted the reconsideration process to analyze and evaluate the results.
According to the Fed, the results were checked for errors to ensure 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.
