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Federal Reserve Board releases corrected stress test results stemming from an error in projected trading losses and as a result, revised the capital requirements for two banks

Oliver Scroop

September 7, 2020

The Federal Reserve Board on Friday released corrected stress test results stemming from an error in projected trading losses and as a result, revised the capital requirements for two banks. The Board identified the error and all results affected by it, corrected those results, and implemented changes to prevent similar errors in the future.

The loss rates for certain public welfare investments made by large banks were initially miscalculated, resulting in an overestimation of hypothetical losses for those investments. The error affected five banks: Citigroup Inc., The Goldman Sachs Group Inc., HSBC North America Holdings Inc., Morgan Stanley, and Wells Fargo & Company. The resulting common equity tier 1, or CET1, capital requirements for three firms were unaffected, while the CET1 capital requirements for two firms were revised. The updated CET1 requirements for the five firms are listed in the table below. The related stress test results documents have also been updated.

In its review of the loss models used for certain public welfare investments, the Board identified other model components that were similarly implemented and has conducted additional reviews, which found no further implementation errors.

Bank Previous CET1 Capital Requirement Revised CET1 Capital Requirement
Citigroup Inc. 10.0% 10.0%
(unchanged)
The Goldman Sachs Group, Inc. 13.7% 13.6%
HSBC North America Holdings Inc. 10.2% 10.2%
(unchanged)
Morgan Stanley 13.4% 13.2%
Wells Fargo & Company 9.0% 9.0%
(unchanged)

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