Deutsche Bank, UBS see biggest stress capital buffer increases

Bloomberg News

The American subsidiaries of Deutsche Bank and UBS will see the largest increases to their regulatory capital requirements for the coming year. 

New York-based DB USA Corporation, the holding company for Deutsche Bank, will see its stress capital buffer increase by 4.8 percentage points for a total tier 1 capital requirement of 13.8%. Meanwhile, UBS Americas Holding, also headquartered in New York, will see its obligations increase by 4.3 percentage points to 13.6%.

Capital One Financial Corp., based in McLean, Virginia, will see its capital burden tick up notably, with a 1.7 percentage point bump to 9.3%.

The increases are the result of the banks' performance on the Fed's annual stress test. Both firms saw their minimum capital levels under this year's stress scenario decrease fall below the minimums registered in 2022. Banks must meet these capital requirements by October 1.

Along with determining the final component of each examined bank's regulatory capital obligation, the stress test also determines how large of a dividend banks can pay to their shareholders.

Overall, banks that were subjected to this year's test performed better relative to the year prior, resulting in capital requirements remaining unchanged and in some cases falling slightly. Boston-based Santander Holdings USA saw its capital requirement fall by 1.2 percentage points and Credit Suisse Holdings — which was acquired by UBS in a government-brokered deal earlier this year to avert the collapse of Credit Suisse — saw its stress capital buffer fall by 1.8 percentage points.

Ten other banks also saw modest decreases to their stress capital buffers, while nine banks saw their obligations increase. 

Regulation and compliance

Bank groups petition Fed for stress test rulemaking

July 26, 2023 10:37 AM

The stress capital buffer and, in particular, the stress test's role in determining it, have come under fire from banks and bank advocates recently. Bank groups argue that the stress capital buffer has become a binding constraint and the process for determining it — namely scenario testing — lacks sufficient transparency.

Just this week, the Bank Policy Institute and the American Bankers Association petitioned the Fed to launch a rulemaking process for determining scenarios in each year's test. They've also called for the central bank to disclose the models it uses to evaluate banks during the test.

On Thursday, during an open meeting to consider revisions to the capital framework, Fed Govs. Michelle Bowman and Christopher Waller both expressed concerns about how the proposed changes might overlap with the stress testing regime.

Bowman called for reconsidering the capital framework as a whole, including the stress test, before implementing changes. 

"It is not clear whether or when we will revisit the broader set of capital rules to address redundancy and overlap, but doing so could significantly improve the efficiency of the capital framework," she said.

Bowman and Waller both voted no on the proposal.