7 U.S. Banks That Will Need to Hold More Regulatory Capital
The Federal Reserve recently released new bank capital requirements for large banks, which tells them how much regulatory capital they need to hold to absorb future expected and unexpected loan losses. The release comes about a month after the Fed conducted its annual stress testing, in which it puts the largest banks through adverse and hypothetical economic conditions to see how their balance sheets would hold up. This year, due to the coronavirus pandemic -- and the particularly difficult economic conditions that came with it -- the Fed ran additional scenarios to see how banks would perform in certain economic scenarios that could be caused by the pandemic. Stress testing is important because it determines how much capital banks will have to hold for at least the next year, starting in October.
While it is very important that banks are well capitalized and have enough capital to absorb significant losses, the more capital banks have to hold, the less they can deploy into interest-earning assets such as securities and loans. That may not be important right now, but if economic conditions normalize in a few months, it will be much more relevant. These ratios also play a role in determining a bank's capital distributions because if banks' capital ratios fall below their required minimum threshold, they may have to scale back their dividend or stock buyback plans. The Fed released new requirements for banks' common equity tier 1 (CET1) capital ratio, which is a measure of a bank's core capital such as retained earnings, common stock surpluses, and accumulated other comprehensive income expressed as a percentage of risk-weighted assets. Here are seven U.S. banks that saw their CET1 ratio requirements increase.
Image source: JPMorgan Chase.
Source Fool.com
