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UPDATE 1-Federal Reserve announces post-stress test capital ratios for large banks

Mon, 10th Aug 2020 14:30

(Adds detail and context)

By Pete Schroeder

WASHINGTON, Aug 10 (Reuters) - The U.S. Federal Reserve
announced on Monday how much each large bank that underwent its
2020 stress tests will have to hold in additional capital.

The results mark the first time the Fed has given out custom
capital requirements for each bank under its new "stress capital
buffer," and takes effect on Oct. 1. Goldman Sachs and
Morgan Stanley were ordered to hold the most capital of
the 34 firms tested, with ratios of 13.7% and 13.4%
respectively.

The custom capital requirements follow stress test results
released in June, which found that banks would weather heavy
capital losses should the economic fallout from the coronavirus
pandemic drag on or worsen. The Fed ordered banks to cap
dividend payments and bar share repurchases until at least the
fourth quarter to ensure they have sufficient cushions.

The new capital ratio combines the minimum capital
requirements of 4.5% and the new "stress capital buffer," which
is determined by how each bank fared under a hypothetical severe
economic downturn. That buffer is at least 2.5%, but was highest
for Deutsche Bank's U.S. operations at 7.8%.

The nation's largest banks also face an additional capital
surcharge for their predominant role in the financial system,
ranging from 1% to 3.5% for JPMorgan Chase, the nation's
biggest bank.

The Fed also announced that it had reaffirmed the stress
test results for five banks that requested reconsideration: BMO
Financial Corp, Capital One Financial Corp,
Citizens Financial Group Inc, Goldman Sachs and Regions
Financial Corp. The Fed said the additional review found
its stress test models worked as intended and there were no
errors.
(Reporting by Pete Schroeder
Editing by Chizu Nomiyama and Jonathan Oatis)

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