Whoops: Goldman, Morgan Stanley see their common equity capital requirements shaved due to error in Fed calculations

Capital requirements for two banks were revised as a result of corrected stress test results that stemmed from an error in projected trading losses, the Federal Reserve said Friday.

In a release, the central bank said the common equity tier 1 (CET1) capital requirements for Goldman Sachs and Morgan Stanley were revised slightly downward as a result of the revisions, from 13.7% to 13.6% for Goldman, and from 13.4% to 13.2% for Morgan.

The Fed said that it has identified and corrected the error in its trading loss projection calculations and that it has “implemented changes to prevent similar errors in the future.”

The agency said that the error was created by miscalculations for loss rates for certain public welfare investments made by large banks (which, other than the two whose capital ratios were revised, are Citigroup Inc., HSBC North America Holdings, and Wells Fargo. Capital requirements for those three banks are unchanged.)

The Fed also admitted that, in reviewing loss models used for certain public welfare investments, it found other model components that were implemented in the same way, which led to further reviews. However, the Fed said it found “no further implementation errors.”

Federal Reserve Board releases corrected stress test results stemming from an error in projected trading losses and as a result, revised the capital requirements for two banks