The Federal Reserve Board has announced the final individual capital requirements for large banks, which will take effect on October 1. These requirements are based on the results of the Board's recent stress test, which assesses the capital needs of banks in a way that is sensitive to risk and looks ahead to future conditions.
Earlier this year, in April, the Board proposed a rule aimed at reducing fluctuations in capital requirements from year to year. The proposal would average stress test results over two consecutive years when determining a bank’s capital requirement. If adopted as proposed, this change would mean that this year's stress test outcomes would be averaged with those from 2024, and new capital requirements would be released separately.
Vice Chair for Supervision Michelle W. Bowman commented on the announcement: "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," she said. "Finalizing the rule proposed in April would be an important next step to reducing year-over-year volatility in bank capital requirements. This would allow the Board to publish revised stress capital buffer requirements once the rule is finalized, based on averaged stress test results."
The published table lists each bank's common equity tier 1 capital requirement. This figure consists of several components and serves as a key measure for regulatory purposes. Banks whose capital falls below their total announced requirement will face automatic limits on both dividend payments and discretionary bonuses.
Morgan Stanley’s individual requirement does not currently include a stress capital buffer because it has asked for reconsideration of this part of its requirement. The Federal Reserve Board is reviewing Morgan Stanley’s request and plans to announce its decision—and publish Morgan Stanley’s final individual requirement—by September 30, 2025.