On August 29, 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.
Under the current capital rules, the total common equity tier 1 ("CET1") requirements for covered bank holding companies, savings and loan holding companies, and U.S. intermediate holding companies with $100 billion or more in total consolidated assets are, in part, determined by the supervisory stress test results." The FRB's announcement includes a table showing the total CET1 capital ratio requirement for each of the 34 large banks, including that ratio's three components: (1) the minimum CET1 capital ratio requirement of 4.5% for all the 31 banks; (2) the stress capital buffer ("SCB") requirement for 30 of the 31 covered banks, 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 July, many banks saw their SCBs reduced this year compared to 2024 results, some saw no change (generally those already at the 2.5% minimum), and one bank saw an increase. The minimum CET1 capital requirements for the 31 large banking organizations range from 7.0%-16.0%.
The FRB did note that one bank is requesting reconsideration of its SCB, and that review of the request remains pending and should be completed by the end of September.
The FRB also noted that in April, it proposed a rule to average stress test results over two consecutive years to reduce volatility. If the FRB finalizes the rule as proposed, this year's stress test results will be averaged with those from 2024, and the FRB would update the resulting capital requirements. As part of the FRB press release, Vice Chair for Supervision Michelle Bowman stated "[f]inalizing the rule proposed in April would be an important next step to reducing year-over-year volatility in bank capital requirements. This would allow the Board to publish revised stress capital buffer requirements once the rule is finalized, based on averaged stress test results."
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