An introduction to Large Bank Capital Requirements for U.S. Banks and the use of Google NotebookLM to understand specific of the stress capital buffer component.

Background

Under the U.S. Federal Reserve Board’s capital framework, financial institutions with $100 billion or more in total capital assets, are subject to Annual Large Bank Capital Requirements. In these, the Total Common Equity Tier 1 (CET1) ratio is made up of:

• a minimum CET1 ratio of 4.5%
• the stress capital buffer (SCB), determined from supervisory stress tests, a minimum of 2.5%
• if applicable, a capital surcharge for globally systemically important banks (G-SIBs), a minimum of 1%

I covered G-SIB charges here and here but have not yet covered the stress capital buffer or indeed the Large Bank Capital requirement itself.

Large Bank Capital

The Board of Governors of the Federal Reserve System publish each year (in Q3) the Large Bank Capital Requirements, which can be found here.

The 2025 version was published August 29, 2025 with the table:

(The full document is available here).

Showing 31 banks with CET1 requirements in the final column ranging from a low of 7% (Amex, Charles Schwab, Northern Trust, plus 4 others) to a high of 16% for DB (Deutsche Bank) USA Corporation. Note these are the regulatory requirements, actual capital held by banks is higher.

For the 6 largest BHCs in order of total assets:

• JPMorgan Chase, 11.5%
• Bank of America, 10%
• Citigroup, 11.6%
• Wells Fargo, 8.5%
• Goldman Sachs, 10.9%
• Morgan Stanley, 11.8%

Surprisingly Morgan Stanley is the highest, due primarily to it’s Stress Capital Buffer Requirement being higher than the others.

Let’s look into this.

Stress Capital Buffer

Starting with a table of SCB changes from 2024 to 2025.

Showing most banks with decreases:

• UBS Americas, the largest decrease with -4.1%
• Goldman Sachs -2.7%
• DB USA -2.4%
• Morgan Stanley -1.7%

Only two with small increases, KeyCorp and TD Group US Holdings.

The SCB charge is determined by annual supervisory stress test exercises.

Supervisory Stress Tests

Full details of the annual Stress Tests are available on the Federal Reserve website here. A snapshot of the page for 2025 shows that there are a lot of documents:

As we all now have GenAI tools to hand, I decided to use Google NotebookLM and upload the first document “2025 Stress Test Scenarios” as well as it’s 2024 equivalent and create a Notebook.

If you have not used NotebookLM for a while, you will see that there are new items in the Studio panel on the right, which can be used to build our understanding.

Let’s start with Mind Map.

Nice, an interactive mind map and clicking on the > expands a node of interest.

Mind Map

Lets do that for each of the top level nodes in turn.

Just scanning the above will give you a good sense of the Stress Tests and learn that the 2025 Severely Adverse Scenarios were less severe than 2024.

InfoGraphics

Using the Studio Infographic function, produces:

Sensationally slick and potentially a nice visual for a factsheet or a presentation.

It’s also a simple click to create a presentation, which I did and you can download here.

Next I tried Video Overview, which responded with “This may take a while”, fair enough, eventually it came back. Unfortunately it is too annoying, basic, 6 minutes long and with the wrong emphasis/context, so I am not going to subject you to it….

Stress Test Results

After processing all the data received from banks, the Federal Reserve also publishes a Stress Test Results paper (2025 pdf is here).

This is the most interesting document to read, but at 53 pages including Appendices there is a lot of information, making it ideal for me to upload into NotebookLM to get an understanding. I can do this using my preferred media, Audio, Mind Map, Quiz, Flashcards, Slide Deck.

I went for Slide Deck, the pdf of which you can download here.

While the overall deck is pretty good, there are mistakes in some of the numbers shown e.g. in both the charts shown on slides 3 & 4, which need correcting. (We know that reading data from tables in pdfs is not 100% reliable).

So while it pulls a lot of interesting information into the slides, it is definitely important to read the source document or use the NotebookLM Chat window and follow the references to the source.

There is a lot of interesting bank specific information in the results, such as this table of projected losses, revenue and net income.

Commenting on this is a task for a longer blog, but I do find the chart on page 20 of the results document very interesting.

Of the projected $549 billion losses in the severely adverse scenario, 86% is loan losses and 8% is trading and counterparty losses. A clear reminder where the largest risks and assets are in banking.

Large Bank Capital

Returning to Large Bank Capital, we now know that the 2025 Total CET1 Capital requirement is lower than 2024 driven entirely by reduced Stress Capital Buffers.

When the new G-SIB charges are published, it is unlikely these will show material reductions. Note the FSB has recently published the 2025 G-SIBs list (one to cover in a future blog) and this shows Bank of America moving to a higher bucket.

However for U.S. Banks the charges determined by the higher of two methods; Method 1 (Basel FSB methodology) or Method 2 ( Federal Reserve methodology) and Method 2 has always been higher. From my blog, Capital Charges to increase for JPMorgan and Bank of America, we expect 0.5% increases for the G-SIB surcharges of these two banks, negating most of the impact of the 0.8% and 0.7% reduction in Stress Capital Buffers.

In Summary

• Question: What are the components of Large Bank Capital Requirements for U.S. Banks?
• Answer: The components are a minimum common equity tier 1 (CET1) ratio of 4.5%, a stress capital buffer of at least 2.5% and a surcharge for globally systemically important banks (G-SIBs) of at least 1%.

• Question: What are typical CET1 ratios for Large Bank Capital Requirements of U.S. Banks?
• Answer: The minimum CET1 requirement is 7% and 7 out of 31 Large U.S. Banks are at this level. For the 6 largest U.S. Banks, which are G-SIBs the CET1 requirement ranges from 8.5% to 11.8%. Note that actual CET1 ratios are generally materially higher than the regulatory requirements.

• Question: How is the Stress Capital Buffer determined?
• Answer: By annual supervisory stress tests that define base and severely adverse scenarios that firms are required to apply and send results for supervisors to analyse.