Fed sets this year's capital requirements for large banks

Graeme Sloan/Bloomberg

Following its annual stress tests, the Federal Reserve on Friday set new capital requirements for the nation's largest banks, setting the minimum equity they must hold to absorb losses in a downturn.

Vice Chair for Supervision Michelle Bowman said the requirements come during a "period of transition" for the Fed's stress testing system, as the central bank works to finalize a rule that would average test results over two years to calculate their stress capital buffer.

The bank–by-bank capital requirements, which go into effect on Oct. 1, combine a 4.5% minimum requirement, a stress capital buffer of at least 2.5%, and surcharges for the most systemically important firms. Revised figures could be published later.

"As the Board continues to fulfill its commitment to reducing year-over-year volatility and increasing transparency of the stress test, the individual capital requirements announced today represent a period of transition," Bowman said. This year's capital requirements showed continuity at some banks and sharp shifts elsewhere, but most banks' requirements were flat or lower.

Deutsche Bank's U.S. unit faces a common equity Tier 1 requirement of 16%, down from last year's 18.4%, but still far higher than its 13.8% ratio in 2023. Citigroup's requirement softened slightly to 11.6% from 12.1% in 2024 and 12.3% in 2023. JPMorganChase's requirement was similar to previous years — 11.5% in 2025, compared with 12.3% in 2024 and 11.4% in 2023.

Goldman Sachs' CET1 requirement fell to 10.9% from 13.7% last year, after its stress capital buffer was adjusted downward.

The Fed withheld a final requirement for Morgan Stanley, which has asked regulators to reduce its stress capital buffer. A decision is expected by Sept. 30. 

The annual stress tests subject firms with at least $100 billion of assets to simulated recession scenarios, estimating the losses in revenue and costs incurred by firms, as well as their resulting capital levels under the scenarios. Banks that fall short of their capital thresholds face constraints on shareholder payouts and executives' bonuses.

Stress tests

Fed proposes averaging stress test results over 2 years

April 18, 2025 1:49 PM

In this year's stress tests, U.S. banks recorded their best performance since the current tests were enacted, with common equity Tier 1 capital projected to fall just 1.8% in the severe scenario, a decrease from 2.8% last year and the lowest loss rate since 2020. No banks failed under the simulation.

The results arrive as the Fed, under Bowman, moves to reform stress testing by averaging results over two years to dampen the movement in requirements from year to year.

"Finalizing the rule proposed in April would be an important next step to reducing year-over-year volatility in bank capital requirements," Bowman said Friday. "This would allow the Board to publish revised stress capital buffer requirements once the rule is finalized, based on averaged stress test results."

Other Fed governors like Michael Barr have said they support reforming the stress tests but oppose weakening them. Barr favors making the tests nonbinding, while raising minimum capital requirements and using supervisory discretion for risks unique to specific banks. He has warned that the Fed's proposed changes would undermine stress test rigor and impair the central bank's ability to assess big banks' resilience, calling the decision "regrettable."