WASHINGTON — The Federal Reserve on Friday said there was an error in the calculation of the capital requirements for five banks that were subject to stress tests this year, which affected the capital requirements for Morgan Stanley and Goldman Sachs.
The central bank said it had miscalculated the loss rates for certain public welfare investments, which resulted in “an overestimation of hypothetical losses for those investments."
To correct the error, the Fed updated the common equity Tier 1 capital requirements for Morgan Stanley and Goldman Sachs to 13.2% and 13.6%, respectively, down from 13.4% and 13.7%.
Citigroup, HSBC and Wells Fargo were also affected by the error, but the capital requirements for those firms remain unchanged.
The Fed has instituted changes to prevent similar errors to the calculation of capital requirements in the future, and also conducted reviews of its other models used as part of its stress tests, which found no other errors, the agency said.
Even with the updated capital requirements, Morgan Stanley and Goldman Sachs will still
Goldman Sachs had appealed the Fed’s stress test results after they were published, but the Fed had turned down that appeal, along with appeals from BMO, Capital One, Citizens and Regions.
