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Fed Sees Goldman, JPMorgan Overvaluing Capital Strength

Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley lagged behind peers in a key measure of capital strength used by U.S. regulators to stress-test their resiliency in a severe recession.

The three firms submitted more-optimistic estimates of their capital strength and ability to avoid losses on trading and lending than Federal Reserve projections released yesterday for the 18 biggest U.S. banks. Of the three, the gap was widest for Goldman Sachs, which predicted that its Tier 1 common ratio may fall as low as 8.6 percent in a sharp economic downturn, compared with the central bank’s 5.8 percent estimate.