Fed sees little to no growth in much of U.S. as stress mounts

By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) – Federal Reserve officials saw “little or no growth” in four of their 12 regional districts and only modest growth in the others in recent weeks as a rapidly spreading health crisis and ongoing recession continued to devastate some U.S. businesses and families even as many others thrive.

In the U.S. central bank’s latest “Beige Book” compendium of anecdotes from businesses across the country, Fed officials seemed to signal that the winter slowdown they’ve feared would follow a new coronavirus outbreak is taking root.

Earlier on Wednesday, Fed Chair Jerome Powell repeated his plea for Congress to provide more aid to “get us through the winter” and support businesses and households until a vaccine allows for a broader resumption of commerce. Initial inoculations may begin in the United States this month.

Meanwhile, the pandemic is spreading at a rate of a million new cases a week and around 1,500 deaths a day.

In some places that has led officials to impose new restrictions on businesses and social gatherings. In others, households have pulled back on their own.

But overall it has left little capacity to fix problems that have plagued the economy since the onset of the pandemic last spring, with women sidelined from the workforce due to childcare concerns, leisure and hospitality firms semi-shuttered, and banks concerned their loans books may come under stress soon.

“This is one of the most troubling Beige Books we have seen in a long time,” Jefferies LLC economist Thomas Simon said.

The possibility of growing loan bank stress added a newly worrisome note: The comparative lack of loan defaults so far has prevented the recession from spawning a separate financial crisis.

But “banking contacts in numerous Districts reported some deterioration of loan portfolios, particularly for commercial lending into the retail and leisure and hospitality sectors,” Fed officials reported. “An increase in delinquencies in 2021 is more widely anticipated.”

Commercial real estate – especially in the office and retail sectors – was a weak spot across most districts. The Boston Fed reported that contacts there “estimated daytime office occupancy rates at around 20 percent – bad news for the shops and restaurants that relied on office workers’ business.”

The regional bank also said office tenants nearing the end of leases were renewing only for the short term and that some respondents noted an increase in available subleased space, signaling more trouble ahead in the sector.

Similarly, firms had become tentative about hiring because of the uncertain path of the pandemic.

LABOR MARKET WORRIES

Nearly all districts reported that employment was growing more slowly and that the recovery “remained incomplete.”

Businesses said it was harder to retain workers, especially women, because of challenges finding child care and dealing with school closures caused by the virus. Firms in several districts said they feared “employment levels would fall over the winter” before improving.

In Boston, “a supplier to commercial aviation announced major layoffs over the summer and has not had any reason to revise those plans either up or down,” local Fed officials noted.

Still the latest collection of Fed field reports, compiled on or before Nov. 20, included stories of other firms where managers struggled to find workers to help meet a boom in goods sales.

That divide, among regions and sectors that are doing well and those that are not, has become a hallmark of the current recession and presents the Fed with a difficult decision as it debates whether to provide more support for the economy at its Dec. 15-16 policy meeting.

The economy continues to recover from the deep blow it suffered at the start of the pandemic, and the prospect of a coming COVID-19 vaccine means the recovery could gain steam next year.

In the meantime, the country is 10 million jobs short of where it was in February. Job numbers for November will be released on Friday and are expected to show the pace of improvement is slowing, with some analysts now predicting an outright job loss.

(Reporting by Howard Schneider; Editing by Chizu Nomiyama and Paul Simao)

U.S. coronavirus wildfire hitting jobs as broad recovery trudges on

By Howard Schneider

WASHINGTON (Reuters) – The most intense U.S. coronavirus outbreak yet appears to have slowed hiring and may have begun to drag on retail spending on the cusp of the holiday shopping season, even as overall economic activity proves more resilient than in the spring.

But that uneasy coexistence – wildfire-like spread of a deadly disease with an economy that remains largely open – may be tested in coming weeks if face mask mandates and lighter-touch restrictions imposed by local governments fail to curb the spread of COVID-19. Infections are growing by more than 1 million a week, according to data from the COVID Tracking Project, and the week-to-week percentage change is rising too.

Some local governments are taking more aggressive steps, with New York City again closing schools, and in a rare federal response from the “lame-duck” administration of President Donald Trump, the U.S. Centers for Disease Control and Prevention urged Americans not to travel for next week’s Thanksgiving holiday, which typically sees tens of millions on the move.

Most states, though, are moving gingerly, curbing restaurant hours or seating capacity, but not shuttering nonessential businesses like during the early months of the U.S. outbreak in the spring.

Still, the surge in cases appears to have capped the U.S. economic rebound, according to high-frequency data tracked by economists for real-time evidence about the recovery.

Employment at a sample of mostly small businesses from time management firm Homebase declined for a fourth week, and shifts worked across different industries fell, according to time management firm UKG.

“The uncertainty that exists right now and has existed really since mid-summer is making it really hard for business owners to think about growth,” said David Gilbertson, UKG vice president for strategy and operations. “We seem to take one step forward, and then one step back.”

The decline in shifts from mid-October to mid-November likely points to a weakening jobs report in November, he said.

LOOKING ‘GRIM’

Since the spring’s catastrophic drop in employment, the economy has clawed back about half of the more than 20 million lost positions. But momentum is slowing, and last week the number of new claims for unemployment insurance rose for the first time in about a month.

An index of new job postings from analytics firm Chmura as of August had reached a high of 85% of the level predicted in the absence of the pandemic, but is now at 67%.

Workers may be in for a “grim” period, said AnnElizabeth Konkel, economist at Indeed Hiring Lab, whose index of job postings remains 13% below 2019 levels. Holiday hiring is largely complete, and unemployment benefits are expiring for many of those out of work since the spring, a lapse that may finally be weighing on national data.

Initially, the flood of government support increased incomes for many families and supported consumer spending. Data on 30 million JPMorgan debit- and credit-card customers, however, showed spending fell “notably” in early November from a level just 2.7% below 2019 to 7.4% below last year, said JPMorgan economist Jesse Edgerton.

Declines were sharper in places where COVID-19 was spreading more rapidly but were still widespread, suggesting “a broader pullback in spending,” Edgerton wrote. U.S. retail sales in October also grew less than expected.

That and other data indicate an outright decline in jobs in November versus October, Edgerton said, evidence that millions left jobless by the pandemic face a long road back to normal.

SOME IMPROVEMENTS

Vaccine prospects, however, “represent a ray of light at the end of the tunnel,” said Gregory Daco, chief U.S. economist at Oxford Economics. Oxford recovery tracker rose slightly last week, snapping a five-week skid, a sign that the scale of economic collapse seen in the spring is not in the offing.

Data from OpenTable showed a slight rise in diners seated at restaurants over the past week even as new limits were imposed.

Some Federal Reserve officials have noted how businesses, particularly in manufacturing, construction and some parts of the retail sector, have adapted to operating during the pandemic. A New York Fed weekly index projecting growth in gross domestic product has risen steadily since the recession began.

But Oxford’s index and other data have also remained largely stalled, well below pre-pandemic levels. Data tracking cellphone movement from Unacast, for example, has shown no upward trend since summer.

That may remain the case until vaccines are rolled out to enough people to make a difference.

Meanwhile, “the recovery is becoming entrenched in a low-growth mode, and we are worried about signs of lasting economic damage,” Daco wrote.

(Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao)

Senate blocks confirmation of Trump Fed nominee Shelton

(Reuters) – The U.S. Senate on Tuesday blocked President Donald Trump’s nomination of Judy Shelton to the board of the Federal Reserve, making her the latest in a string of failed nominees to the central bank.

Trump’s Republican Party has a 53-47 majority in the current Senate, but several were absent, including two who were quarantining due to exposure to COVID-19, and others joined Democrats in voting ‘no’ in the so-called cloture vote.

The vote was 47 to 50 with Senate Majority Leader Mitch McConnell voting ‘no’ to preserve the option to reconsider later.

Shelton, an adviser to Trump’s 2016 presidential campaign who has argued the nation would be better off returning to the gold standard, as recently as 2017 criticized the Fed’s power over money and financial markets as “quite unhealthy.” During her Senate confirmation process, she called the Fed’s bond-buying and zero rates in the last crisis “extreme.”

Her views on interest rates have moved in lockstep with Trump’s. She lambasted easy money before Trump’s presidency, but supported it after he took office, and has expressed skepticism over the Fed’s need to set policy independently from the president and Congress.

Other Trump Fed nominees that failed to be confirmed included former Republican presidential candidate Herman Cain, who later died of COVID-19.

(Reporting by Patricia Zengerle and Doina Chiacu; writing by Ann Saphir; editing by Jonathan Oatis and Edward Tobin)

U.S. manufacturing near two-year high; road ahead difficult

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity accelerated more than expected in October, with new orders jumping to their highest level in nearly 17 years amid a shift in spending toward goods like motor vehicles and food as the COVID-19 pandemic drags on.

The survey on Monday from the Institute for Supply Management (ISM) was the last piece of major economic data before Tuesday’s bitterly contested presidential election. But the outlook for manufacturing is challenging.

While the coronavirus crisis has boosted demand for goods complementing the pandemic life, a resurgence in new cases across the country could lead to authorities re-imposing restrictions to slow the spread of the respiratory illness as winter approaches, which could crimp activity. Government money for businesses and workers hit by the pandemic, which boosted economic growth in the third quarter, has dried up.

“Manufacturing rebounded strongly with fewer restrictions on economic activity and stimulus efforts, but the path forward will be more difficult as the economy continues to cope with the pandemic,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.

The ISM said its index of national factory activity increased to a reading of 59.3 last month. That was the highest since November 2018 and followed a reading of 55.4 in September.

A reading above 50 indicates expansion in manufacturing, which accounts for 11.3% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 55.8 in October.

The jump in activity, however, likely overstates the health of the manufacturing sector. A report from the Federal Reserve last month showed output at factories dropping 0.3% in September and remaining 6.4% below its pre-pandemic level.

Manufacturers and suppliers said last month they “continue to operate in reconfigured factories” and with every month were “becoming more proficient at expanding output.”

Though sentiment among manufacturers remained upbeat, there were two positive comments for every cautious comment, a slight decrease compared to September.

The outcome of Tuesday’s vote is expected to lead to a brief period of uncertainty. President Donald Trump is trailing former Vice President and Democratic Party candidate, Joe Biden, in national opinion polls.

Stocks on Wall Street were trading higher following their steepest weekly loss. The dollar was steady against a basket of currencies. U.S. Treasury prices rose.

NEW ORDERS SURGE

Fifteen industries, including apparel, food, furniture and transportation equipment reported growth last month. Textile mills and printing reported a contraction.

Manufacturing’s continued recovery will likely keep the economy floating, with growth expected to slow sharply in the fourth quarter after a historic 33.1% annualized rate of expansion in the July-September period.

Growth last quarter, which followed a record 31.4% pace of contraction in the April-June quarter, was juiced up by more than $3 trillion in government pandemic relief. There is no deal in sight for another round of fiscal stimulus.

A separate report from the Commerce Department on Monday showed construction spending rose a moderate 0.3% in September, slowing after a 0.8% increase in August.

The coronavirus crisis has pulled spending away from services towards goods that complement the changed life-style. Spending on goods has surpassed its pre-pandemic level.

Makers of chemical products reported “business continues to be robust.” Food manufacturers said they had “increased production due to stores stocking up for the second wave of COVID-19.” Manufacturers of computer and electronic products said the coronavirus continued “to have an effect on supplier support and operations, more from a decreased labor perspective rather than unavailable material.”

The ISM’s forward-looking new orders sub-index surged to a reading of 67.9 last month, the highest reading since January 2004, from 60.2 in September. Customers’ inventories remained too low for the 49th straight month and order backlogs steadily increased, which bodes well for future production.

“On the upside, social distancing efforts, which have been a factor in consumers pivoting spending away from services and toward goods, is showing no signs of abating, especially as virus case counts are surging again,” said Sarah House, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

“This shift to goods spending should continue to underpin orders, but is unlikely to go on with the same muster as it did earlier when an initial flurry of spending on manufactured goods aimed at setting up at-home offices and remote classrooms boosted goods spending.”

With orders booming, manufacturing employment expanded for the first time since July 2019. The ISM’s manufacturing employment gauge rose to a reading of 53.2 from 49.6 in September. That likely supported overall job growth in October.

According to a Reuters survey of economists, nonfarm payrolls probably increased by 700,000 jobs last month after rising 661,000 in September. Employment growth has cooled from a record 4.781 million in June. About 11.5 million of the 22.2 million jobs lost during the pandemic have been recovered.

The government is scheduled to publish October’s employment report on Friday.

(Reporting By Lucia Mutikani,; Editing by Chizu Nomiyama and Andrea Ricci)

Fed officials tussle over practical meaning of new inflation policy

By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) – Federal Reserve policymakers on Friday began fleshing out what their new tolerance for inflation will mean in practice, an issue critical to how investors and households reshape their own outlooks even if it may not be relevant to any immediate decisions by the U.S. central bank.

The new policy, laid out in a strategic document last month and incorporated into a policy statement issued on Wednesday, pledges to keep interest rates near zero until inflation has hit the Fed’s 2% target and is on track “to moderately exceed” it “for some time.”

As it stands, with the coronavirus pandemic sapping demand, leaving millions of Americans unemployed, and threatening the survival of entire industries, inflation is not seen as the core risk. Economic projections released by the Fed this week show inflation only reaching 2% by the end of 2023, with any shift towards tighter monetary policy likely years down the road.

But how the Fed’s new language is interpreted by the central bank’s five current Washington-based governors and 12 regional bank presidents will be central to whether bond markets, stock investors and even consumers see the new approach as likely to be effective, and start behaving in a way that actually helps push inflation higher.

After years of weak inflation, that is the Fed’s hope. It is based on fears of a Japanese-style low inflation rut that can have its own damaging effects over time, and Fed officials on Friday started to outline their views of how to proceed.

Atlanta Fed President Raphael Bostic said, for example, that he’d be paying closer attention to how fast inflation rises rather than to its quarter-to-quarter level in implementing the new approach.

In an interview on Bloomberg Television, Bostic said if inflation went up to 2.3% but appeared stable “that would be fine … By contrast if we were at 2.2 and the next quarter at 2.4 and then at 2.6, that trajectory would give me concern” and perhaps require efforts to cool the economy.

‘GHOST STORIES’

Minneapolis Fed President Neel Kashkari, in contrast, laid out a more open-ended view in written comments describing why he dissented against the rate-setting Federal Open Market Committee’s policy statement on Wednesday.

The Fed, he felt, was setting itself up to make the same mistake it has in the past of reacting too quickly to inflation “ghost stories” and risked nipping off job growth too soon.

He said the Fed instead should switch its focus to core inflation, a slower moving variable that excludes volatile commodity prices, and ensure that it reached 2% on a “sustained basis.”

“I would have preferred the Committee make a stronger commitment to not raising rates until we were certain to have achieved our dual mandate objectives,” of maximum employment consistent with stable prices, Kashkari said in an essay.

A second dissent from Dallas Fed President Robert Kaplan argued the central bank should keep its options open to raise rates sooner if needed – a sign of the broad debate now taking place over just what the new framework will mean in practice.

Critics say they feel the Fed’s new approach rings hollow without strong measures to back it up and produce the higher inflation they seek, such as more aggressive bond-buying.

But St. Louis Fed President James Bullard said inflation may move higher on its own if, as he suspects, the economic recovery gains traction at a time when global supply chains are being reorganized, monetary policy is loose, and governments are issuing record levels of debt to finance pandemic-related spending.

“A lot of people on Wall Street are saying ‘you could not hit 2%, how are you going to have inflation above 2%?,'” Bullard said in webcast remarks to a Washington University in St. Louis forum.

“I think we are at a moment where you may see some inflation … You have got more relaxed central banks … You have got huge fiscal deficits which historically have been a catalyst for inflation. And you have possibly bottleneck-type pressures.”

(Reporting by Howard Schneider and Ann Saphir; Editing by Paul Simao)

U.S. weekly jobless claims remain perched at higher levels; housing marches on

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits fell less than expected last week and applications for the prior period were revised up, suggesting the labor market recovery had shifted into low gear amid fading fiscal stimulus.

The weekly jobless claims report from the Labor Department on Thursday, the most timely data on the economy’s health, also showed nearly 30 million people were on unemployment benefits at the end of August.

Signs the labor market was stalling came a day after the Federal Reserve vowed to kept interest rates near zero for a long time. The U.S. central bank noted that the COVID-19 pandemic “will continue to weigh on economic activity” in the near term and “poses considerable risks to the economic outlook over the medium term.” Fed Chair Jerome Powell said more fiscal support was likely to be needed for the economy.

Initial claims for state unemployment benefits fell 33,000 to a seasonally adjusted 860,000 for the week ended Sept. 12. Data for the prior week was revised to show 9,000 more applications received than previously reported. Economists polled by Reuters had forecast 850,000 applications in the latest week.

Un-adjusted claims dropped 75,974 to 790,021 last week. Economists prefer the un-adjusted claims number given earlier difficulties adjusting the claims data for seasonal fluctuations because of the economic shock inflected by the coronavirus crisis. Despite last week’s big drop in un-adjusted claims, they remain extraordinarily high.

A total 658,737 applications were received for the government-funded pandemic unemployment assistance last week. The PUA is for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs. Altogether, 1.45 million people filed claims last week.

The claims data added to reports this week showing a slowdown in retail sales and production at factories in August.

U.S. stocks opened lower. The dollar was steady against a basket of currencies. U.S. Treasury prices were higher.

STALL SPEED

After declining from a record 6.867 million at the end of March as businesses reopened after being shuttered to stem the spread of the coronavirus, claims have flattened, with layoffs spilling over to industries that were not initially impacted by the mandated closures.

A program to help businesses with wages expired in August, while $25 billion in government assistance for airlines’ payroll expires this month. Last week’s claims covered the period during which the government surveyed businesses for the non-farm payrolls component of September’s employment report.

The economy created 1.371 million jobs in August after adding 1.734 million in July. About 10.6 million of the 22.2 million jobs lost at the depth of the coronavirus crisis have been recovered.

While other sectors of the economy are losing steam, the housing market continues to power ahead, thanks to record-low interest rates and a migration to suburbs and low-density areas, spawned by the pandemic. Unemployment has disproportionately affected low-wage workers, who are typically renters.

A separate report from the Commerce Department on Thursday showed singe-family home building, which accounts for the largest share of the housing market, increased 4.1% to a seasonally adjusted annual rate of 1.021 million units in August.

Further gains are likely, with building permits for single-family housing units accelerating 6.0% to a rate of 1.036 million units. A 22.7% tumble in starts for the volatile multi-family housing segment, however, led to a 5.1% drop in overall home building to a rate of 1.416 million units last month.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

U.S. regulator calls climate change a systemic risk

(Reuters) – Climate change poses a “slow motion” systemic threat to the stability of the U.S. financial system requiring urgent action from financial regulators, including the Federal Reserve and the Securities Exchange Commission.

That is one of the findings of a landmark report commissioned by the U.S. Commodity Futures Trading Commission and put together by a panel convened about 10 months ago by Rostin Behnam, one of two Democrats on the five-member CFTC.

The panel’s 35 members, including representatives of Goldman Sachs Group Inc., the Dairy Farmers of America, and The Nature Conservancy among others, approved the report on Tuesday.

“The physical impacts of climate change are already affecting the United States, and … the transition to net-zero emissions may also impact many segments of the economy,” the 196-page report said.

“Both physical and transition risks could give rise to systemic and sub-systemic financial shocks, potentially causing unprecedented disruption in the proper functioning of financial markets and institutions.”

A sudden shift in perceptions of the risks from frequent wildfires and intense hurricanes could bring a sudden drop in asset prices, for instance, that cascades through a community and spill more broadly into markets, the report said.

And because the COVID-19 pandemic has depleted household wealth, government budgets and business balance sheets, the economy is more vulnerable than before, it added, “increasing the probability of an overall shock with systemic implications.”

The report’s release comes less than two months ahead of a national election that pits Republican President Donald Trump, who says climate change is a hoax, against Democratic challenger Joe Biden, who calls climate change an “existential threat.”

Its first recommendation is to “establish a price on carbon” that is hefty enough to push businesses and markets to cut use of carbon dioxide-producing fuels such as oil and gas. Taxing carbon would require action by Congress.

But the report’s dozens of other recommendations amount to a call for a sweeping rewrite of financial market rules and norms that could go forward without any new laws and no matter who wins the presidency.

Among the proposals: requiring banks to address climate-related financial risks and listed companies to disclose emissions, and to stress test community banks for their resilience to climate change.

Regulators in Europe have worked for years on efforts to calibrate and mitigate climate risks to financial markets.

Regulators in the United States, where politicians regularly cast doubt on the fact that burning fossil fuels is affecting the earth’s climate, have lagged far behind on such work.

Only recently has the Federal Reserve begun to acknowledge the potential for climate change to destabilize the financial system, and to think about possible responses.

The report urges financial authorities to integrate climate risk “into their balance sheet management and asset purchases, particularly relating to corporate and municipal debt.”

It also calls for them to do research into the financial implications of climate change and join international climate-focused groups, such as the Network for Greening the Financial System, all of which appear to specifically apply to the Fed.

(Reporting by Ann Saphir in Berkeley, Calif.; Editing by Clarence Fernandez)

Powell: Jobs recovery faces ‘long tail’ of a couple of years

(Reuters) – Despite “a lot of strength in the economy,” millions of U.S. workers displaced from restaurant, travel, and similar jobs will struggle to find new employment and need steady support from the government, Federal Reserve Chair Jerome Powell said on Thursday, warning a full jobs recovery could take years.

“There is a particular part of the economy which involves getting people together and feeding them, flying them around the country, having them sleep in hotels, entertaining them,” Powell said in online remarks to the Fed’s annual economic symposium. “That part of the economy will find it very difficult to recover…That is millions of people who are going to struggle to find work. We need to stay with those people….We are looking at long tail of probably a couple of years at least.”

(Reporting by Howard Schneider; Editing by Chizu Nomiyama)

U.S. unfreezing Venezualan assets to help opposition fight COVID-19: Guaido

CARACAS (Reuters) – Venezuela’s opposition said on Thursday the United States has granted it access to millions of dollars of frozen Venezuelan government funds to support efforts to combat the spread of COVID-19 in the country.

The U.S. Treasury Department had approved the release of the funds, the opposition said in a statement without specifying the total amount.

The statement said part of the released funds would go to pay some 62,000 health workers $300. During a live appearance on Twitter on Thursday night, opposition leader Juan Guaido said health workers could register accounts to receive payments of $100 a month starting Monday.

Healthcare workers in Venezuela can earn as little as $5 a month.

Guaido first announced the additional support for healthcare workers four months ago, but distribution required a permit from the Office of Foreign Assets Control (OFAC), as the frozen funds were held by the New York Federal Reserve.

The opposition plans to distribute the funds using AirTM, a digital payment platform, but on Thursday, the website was blocked in Venezuela.

“You have to be very bad to block an account for men and women who are giving everything with conviction to protect our people when they are going to receive a bonus,” said Guaido.

The opposition leader added healthcare workers would be sent a manual with the steps to download a virtual private network (VPN) so they could circumvent the restrictions. AirTM also tweeted instructions how to use a VPN.

Guaido has been recognized by more than 50 countries as Venezuela’s rightful president after assuming an interim presidency in 2019 on the grounds that Maduro’s 2018 re-election was fraudulent.

In July, the opposition obtained permission to distribute $17 million in funds frozen in the United States that would be channeled through international health organizations to purchase supplies for medical workers.

The license also approves another $4.5 million to support Venezuelans at risk of death, an opposition press release said.

Venezuela is suffering economic collapse and its crumbling health system has so far registered 37,567 cases of COVID-19 and 311 deaths, although experts say the number is likely to be higher due to widespread insufficient testing.

(Reporting by Sarah Kinosian; Editing by Simon Cameron-Moore)

Federal Reserve announces post-stress test capital ratios for large banks

By Pete Schroeder

WASHINGTON (Reuters) – The U.S. Federal Reserve announced on Monday how much each large bank that underwent its 2020 stress tests will have to hold in additional capital.

The results mark the first time the Fed has given out custom capital requirements for each bank under its new “stress capital buffer,” and takes effect on Oct. 1. Goldman Sachs and Morgan Stanley were ordered to hold the most capital of the 34 firms tested, with ratios of 13.7% and 13.4% respectively.

The custom capital requirements follow stress test results released in June, which found that banks would weather heavy capital losses should the economic fallout from the coronavirus pandemic drag on or worsen. The Fed ordered banks to cap dividend payments and bar share repurchases until at least the fourth quarter to ensure they have sufficient cushions.

The new capital ratio combines the minimum capital requirements of 4.5% and the new “stress capital buffer,” which is determined by how each bank fared under a hypothetical severe economic downturn. That buffer is at least 2.5%, but was highest for Deutsche Bank’s U.S. operations at 7.8%.

The nation’s largest banks also face an additional capital surcharge for their predominant role in the financial system, ranging from 1% to 3.5% for JP Morgan Chase, the nation’s biggest bank.

The Fed also announced that it had reaffirmed the stress test results for five banks that requested reconsideration: BMO Financial Corp., Capital One Financial Corp, Citizens Financial Group Inc, Goldman Sachs and Regions Financial Corp. The Fed said the additional review found its stress test models worked as intended and there were no errors.

(Reporting by Pete Schroeder; Editing by Chizu Nomiyama and Jonathan Oatis)