Deutsche Bank recently released an industry research report focusing on the capital pressure facing large US banks amid the significant rise in interest rates in the third quarter of 2026, employing two estimation models to assess the impact of rate fluctuations on Common Equity Tier 1 (CET1) capital through Accumulated Other Comprehensive Income (AOCI), and evaluating the evolution of bank share buyback policies.

In its earlier third-quarter earnings preview report, Deutsche Bank estimated that rising interest rates would pressure the book capital of covered banks, including AOCI adjustments, by an average of 51 basis points. To refine the estimation logic, the report introduced a second methodology: instead of only measuring gains and losses on Available-for-Sale (AFS) securities, it utilizes actual AOCI change data from the rate upcycle in the first half of 2026, combined with the objective fact that third-quarter rate increases were roughly three times those of the first half, applying a 3x multiplier to extrapolate third-quarter capital impairment. Both methods yield broadly similar industry-average capital impact results, but individual bank estimates show significant divergence. Under the new model, capital pressure for investment banking institutions (Goldman Sachs, Morgan Stanley), JPMorgan, Bank of America, and Wells Fargo is lower than under the old model, with Morgan Stanley and Wells Fargo showing the largest adjustments; large regional banks show only a 2 basis point difference in overall average impact, but with notable internal divergence, as capital pressure for CFG, FITB, and USB declines markedly, while MTB, RF, and TFC actually show higher estimated capital losses.

Banks May Slow or Suspend Share Buybacks Until Rates Stabilize

Although the capital estimates show that the absolute capital levels of each bank still meet regulatory requirements, the rapid rise in interest rates, highly uncertain rate outlook, and strong loan growth lead Deutsche Bank to judge that most banks will slow or even suspend share buybacks. To restart buybacks and restore them to mid-single-digit levels, rates need to stabilize; over the longer term, if regulatory capital rules are finalized and the Federal Reserve's annual stress tests achieve moderate easing with improved transparency, buyback volumes could rise further. The banking sector will show divergence: money center banks such as JPMorgan, Bank of America, and Wells Fargo will slow the pace of buybacks but will not stop entirely. This judgment is based on their ample capital base at the end of June and strong earnings generation capacity, while these banks need to continue expanding corporate and consumer lending and serve institutional clients' trading and financing needs. In contrast, among large regional banks, 7 of the 9 samples covered by Deutsche Bank would have simulated capital at or below 9.0% after including AOCI impact, and are likely to choose to suspend buybacks. Among them, MTB has sufficient capital buffers and still has room to maintain buybacks; USB's capital level is near the threshold, and it is also advancing business expansion and bank category adjustments, resulting in stronger capital constraints.

The report also explored the asset valuation issue widely discussed in the market: currently only systemically important large banks include AOCI in regulatory capital, and future regulatory rules may expand the scope of application; unrealized losses on Held-to-Maturity (HTM) securities are not included in capital adjustments by regulators and rating agencies, and are only referenced by market investors; low-cost deposits on the liability side are not marked to market, but these liabilities have real value in a high-rate environment.