Federal Reserve Calls for Increase in Bank Capital

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (DFA) sets forth risk-based and leverage capital requirements on a broad range of regulated financial institutions. During the 2020 COVID-19 pandemic, the Federal Reserve reduced bank capital requirements. Recently, the Federal Reserve instructed certain large financial institutions to raise common equity Tier 1 capital to ensure appropriate capital buffers are in place, should a stress condition, such as a severe recession, occur.  Review this practice note to gain an understanding of bank stress testing requirements under the DFA, and the authority of the Federal Reserve to conduct annual supervisory stress test and regulate bank capital levels.

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