Since the Federal Reserve began allowing banks to challenge the results of its stress tests in 2020, eight financial institutions have tried to convince the central bank to adjust its calculations, but all were unsuccessful.
Until now.
The Federal Reserve lowered Goldman Sachs’ stress capital buffer requirement for the fiscal year that begins Oct. 1 to 6.2%. The central bank said on WednesdayThat’s lower than the 6.4% figure given by the Fed in June when it released the results of its annual stress test.
But Goldman said the losses were Green Sky Sales Mortgage platforms should not be used to stress-test projections of future spending, a research firm has said. Friday’s Letter From the Federal Reserve to Goldman Sachs CEO David Solomon.
“We appreciate the Federal Reserve’s willingness to revisit this issue,” Goldman’s CFO said. Dennis Coleman The company said in a statement on Wednesday: “We continue to engage with regulators to better understand their decisions and promote a more transparent process.”
Goldman Sachs had requested an informal hearing on the matter from the Fed, which ultimately declined, and said representatives from Goldman and the Fed met twice over the summer to discuss its concerns.
Solomon has also openly expressed dissatisfaction with the Fed’s 6.4% figure.
“The year-over-year increase in the stress capital buffer does not appear to reflect the strategic evolution of our business or the continued progress toward reducing the stress loss intensity that the Federal Reserve has recognized in the past three tests.” Solomon said The bank made the remarks during a conference call last month to announce its second-quarter earnings.
The revised 6.2% figure is still an increase over the 5.5% stress capital buffer Goldman currently manages.
The Fed’s common equity Tier 1 capital requirement for banks with more than $100 billion in assets has three components: a 4.5% minimum standard, a stress capital buffer of at least 2.5% based in part on stress test results, and an add-on for globally systemically important banks. For Goldman, the latter figure is 3% for fiscal 2025.
Given Wednesday’s correction, Goldman 13.7% must be retained Goldman will be required to hold 13.9% of its risk-weighted assets in capital, lower than the level the Fed proposed in June. Goldman will still have the highest capital requirements of Wall Street’s six U.S.-based banks. By comparison, Morgan Stanley will be required to hold 13.5% in fiscal 2025; JPMorgan Chase & Co. 12.3%, Citi 12.1%, Bank of America 10.7% and Wells Fargo 9.8%. Of the 31 banks that underwent Fed stress tests this year, only two will have higher capital requirements than Goldman: Deutsche Bank and the U.S. operations of UBS.
The central bank said if a bank’s capital holdings fall below the Fed’s required percentage over the next fiscal year, the bank will face restrictions on capital distributions and discretionary bonus payments.
The Fed concluded in June that Goldman would lose more than $40 billion on loans under a severe downside scenario this year. Stress testing.
But the Fed said Wednesday that “based on its analysis of the additional information submitted by the company in its request, the Board determined that it was appropriate to adjust the treatment of certain historical expenses incurred by the bank in the inputs to its stress-test model because these expenses were nonrecurring.”.
