US Federal Reserve announces capital requirements for large banks

The US Federal Reserve, the central bank of the country, has announced new individual capital requirements for large banks.

The new requirements will become effective on 1 October 2021.

The move comes after the large lenders cleared the annual Fed stress test with strong capital levels.

According to a Federal Reserve statement, the capital requirements will ensure that the banks will hold around $1trn in capital. This will help them to weather a severe recession while ensuring lending activities.

“Large bank capital requirements are in part determined by the board’s stress test results, which provide a risk-sensitive and forward-looking assessment of capital needs,” the statement added.

The central bank has kept the minimum capital requirement same for each firm at 4.5%. The stress capital buffer requirement, which is based from the stress test results, starts from 2.5%.

A capital surcharge of at least 1% will be applicable on global systemically important banks.

Separately, the Federal Reserve Board affirmed the stress test results for HSBC North America Holdings, which requested reconsideration.

An independent group was involved with the reconsideration process.

Fed said: “While affirming HSBC’s stress test results for this cycle, the Board also directed the staff to conduct a closer examination of issues raised in the reconsideration process to inform continuing improvements in its stress testing methodology for next year’s stress tests.”