Fed stays course on large bank capital levels, denies bids by BofA, Huntington to reconsider stress test scores

Individual capital requirements for large banks will remain the same, depending on the individual scores the banks received on their stress tests results, when the new rate schedule takes effect Oct. 1, the Federal Reserve said late Thursday.

Meanwhile, the central bank also said it had rebuffed a request by two of the large banks to reconsider their stress tests scores.

In a release, the Fed said the “Large Banks Capital Requirements” for each bank’s total common equity tier 1 capital requirement, made up of several components, will be:

  • A 4.5% minimum capital requirement, the same for each firm;
  • A stress capital buffer requirement of at least 2.5%, which is determined from the stress test results;
  • If applicable, a capital surcharge for global systemically important banks (G-SIBs), which is updated in the first quarter of each year to account for the overall systemic risk of each G-SIB.

The Oct. 1 rate schedule is based on results of stress tests conducted earlier this year for all large banks.

“If a bank’s capital dips below its total requirement announced today, the bank is subject to automatic restrictions on both capital distributions and discretionary bonus payments,” the Fed said.

The central bank also announced that efforts by two banks to have their stress tests results reconsidered – Bank of America Corp. and Huntington Bancshares Inc. – were essentially denied. The agency said that the reconsideration process involved an independent group – separate from the stress testing group – that analyzed and evaluated the results.

“The results were checked for errors and to ensure that 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 Board’s Stress Testing Policy Statement,” the agency said.

Federal Reserve Board announces the individual capital requirements for all large banks, effective on October 1