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Last week, the Federal Reserve Board (“FRB”) announced the individual capital requirements
for all large banks, effective on October 1. This announcement
follows the June announcement on the results of the
supervisory stress test (also known as the Dodd-Frank Act Stress
Test or DFAST, as these tests are required by Section 165 of the Dodd-Frank Act), which
assesses whether banks are sufficiently capitalized to absorb
losses during a severe recession.
The FRB’s announcement noted that “[u]nder the Federal
Reserve Board’s capital framework for bank holding companies,
covered savings and loan holding companies, and U.S. intermediate
holding companies with $100 billion or more in total consolidated
assets, capital requirements are in part determined by the
supervisory stress test results.” The FRB’s announcement
includes a table showing the total common equity tier 1
(“CET1”) capital ratio requirement for each of the 34
large banks, including the CET1’s three components: (1) the
minimum CET1 capital ratio requirement of 4.5% for all the 34
banks; (2) the stress capital buffer (“SCB”) requirement,
which is determined from the supervisory stress test results and is
at least 2.5%; and (3) the global systemically important bank
(“G-SIB”) surcharge for the eight U.S. G-SIBs.
As we noted in June, some of the largest banking
organizations saw an increase to their stress SCB this year. The
minimum CET1 capital requirements for the 34 large banking
organizations range from 7.0%-13.5%.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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