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Goldman Sachs has filed an appeal to the US Federal Reserve challenging the results of the regulator’s most recent “stress test,” which will force the Wall Street bank to hold more capital, according to people familiar with the matter.
The appeal raises issues that Goldman chief executive David Solomon publicly raised two weeks ago, when he argued that the Fed’s results did not reflect the work the bank had done to make its business more stable.
Goldman and the Fed declined to comment.
The Fed’s stress test, which includes Goldman losing more than $40 billion in loans in a range of economic doomsday scenarios, would require the bank to hold more capital relative to its assets. Capital is held by banks to absorb potential losses but is also used to pay dividends and buy back shares.
The results would mean Goldman’s capital holdings rose more than some analysts had expected, as the bank has cut back on its investment in less liquid and riskier private assets. Goldman is also typically subject to some of the highest capital requirements due to its large trading business.
The appeals process begins with banks sending a letter to the Fed outlining the areas where they disagree with the results. The Fed then re-examines the test to find any errors.
Goldman faces long odds in its appeals effort. Since the Fed began allowing banks to appeal their results in 2020, eight lenders have done so, but all have been rejected. Goldman appealed its results once before, four years ago.
The Fed’s stress tests were required by Congress as part of the Dodd-Frank reforms following the financial crisis and are used to decide how much capital banks must hold based on their assets.
In August, the Fed typically discloses the names of any banks that appeal the stress test results and whether they were successful.
Bank capital has become a hot topic over the past 12 months after the Fed proposed implementing new banking regulations, known as the Basel III Endgame reforms, that would require large US banks to hold significantly more capital.
This proposal has caused a fierce opposition. lobbying campaign from the banking industry. Fed Chairman Jay Powell has since said that the central bank, which is also one of the main US banking regulators, will make significant changes to its proposal.
