If a bank’s capital falls below its total requirement, it will face automatic restrictions on capital distributions and discretionary bonus payments.
The Fed also announced a modification to Goldman Sachs’ capital buffer. After the bank requested a review, the Fed agreed to lower its stress capital buffer requirement from 6.4% to 6.2%, taking into account certain one-time expenses that the bank argued should not have impacted its stress test results.
The Federal Reserve emphasized its commitment to refining the stress testing process. “The Board is focused on continuously improving the stress testing framework,” the Fed noted, hinting at future adjustments to better capture the nuances of bank operations in their models.
The stress test results, released last month, revealed that while large banks could face steeper losses in a hypothetical severe recession, they remain well-capitalized overall.
The test projected nearly $685 billion in losses across 31 banks, driven by a scenario that included a deep global recession, a 40% drop in commercial real estate prices, and an unemployment rate surging to 10%. Despite this, all banks maintained capital above the required minimum.
