Federal Reserve Mandates Stricter Capital Requirements for Over 30 Large Banks

The Federal Reserve Board has announced that more than 30 of the nation’s largest banks will be required to maintain a minimum percentage of capital in reserve. This requirement, which the Fed has determined based on each bank's complexity and their designation as a global systemically important bank, will take effect on October 1.

The new capital requirements apply to 32 banks and holding companies with assets of $100 billion or more, as stated in a press release from the Fed on Wednesday. Previously, such requirements were only imposed on financial institutions with more than $700 billion in assets, a threshold that applied to only a few of the very largest banks, according to the Fed.

This move to increase capital requirements follows the collapse of three mid-sized banks in 2023: Silicon Valley Bank, Signature Bank, and First Republic Bank. Additionally, the decision stems from the Fed’s annual stress tests on large banks, which assess the financial resilience of these institutions, particularly in the event of a severe recession.

According to the Fed's accompanying large bank capital requirements list, these banks must now hold between 7% and 18.4% of their capital in reserve. The Fed warned, "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."

Among the affected institutions, Deutsche Bank (DB USA Corp.) faces the highest capital requirement at 18.4%. Goldman Sachs Group, which initially had a capital requirement of 13.9%, successfully appealed to have it reduced to 13.7%, the Fed revealed. Other banks with capital requirements exceeding 12% include UBS Americas, which merged with Credit Suisse in 2023, at 13.8%; Morgan Stanley at 13.5%; JPMorgan Chase at 12.3%; and Citigroup at 12.1%.

By fLEXI tEAM