Regulator, heal thyself. There is always some gnashing of teeth among bankers when the Federal Reserve releases annual stress-test results. Thursday was likely no different. On Friday, it was time for some teeth gnashing at the Fed.
The central bank had to correct some of the most important numbers in the test. These showed the minimum, stressed Tier 1 common ratio at 10 banks was 0.1 percentage points higher than originally stated. And two firms saw their ratio increase by 0.3 percentage points. Unfortunately for HSBC North America, its ratio fell by 0.2 percentage point, while American Express’s dropped by 0.5 percentage point.
Despite this, the Fed had a bit more egg on its face. Its description of the correction for a few of the banks was off. At Citigroup, the Fed said the bank’s ratio increased to 7.2% from 7%; it then listed the increase for the bank as being a change of 0.1 percentage point. After being asked about this by The Wall Street Journal, the Fed amended the entries for Citi and three other banks with a note saying, “Numbers may not add due to rounding.”
While seemingly minor discrepancies, the stress-test results form the basis for Fed decisions on tens of billions of dollars in capital-return requests. In light of that, a tenth of a percentage point can mean a lot.