Goldman Sachs, Morgan Stanley lower stress capital buffers after Fed's correction
Elizabeth Dilts Marshall
(Reuters) - Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) on Friday revised lower two key measures of the banks’ ability to deploy cash in an emergency, after the Federal Reserve said it made an error in its June stress test results.
The Fed said Friday that it miscalculated hypothetical trading losses for Goldman and four other banks and issued corrected stress test results. In response, Goldman issued a statement saying it revised its stress capital buffer downward to 6.6% from 6.7%, and lowered the corresponding standard common equity tier 1 (CET1) ratio requirement to 13.6% from 13.7%.
Morgan Stanley meanwhile lowered its stress capital buffer to 5.7% from 5.9% and its CET1 ratio to 13.2% from 13.4%.
In June, the Fed examined big banks’ balance sheets to see if they had enough funds on hand to handle losses during two years of severe economic and market stress.
Goldman’s loan portfolio suffered significantly higher hypothetical loss rates than those of peers. The Fed ordered Goldman to hold the most capital of the 34 banks it tested, requiring it to have a CET1 ratio of 13.7% by Oct. 1.
Goldman said in June that it had already boosted capital measures and was on track to meet the Federal Reserve’s benchmark for October. Now that will be slightly easier to achieve.