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1st LD Writethru: U.S. Fed rejects two banks' capital plans in annual stress test

Xinhua, March 12, 2015 Adjust font size:

The U.S. Federal Reserve on Wednesday rejected the capital plans of two large banks, the American units of the Deutsche Bank and Banco Santander, due to their "qualitative" deficiencies including ability to model losses and identify risks.

A total of 31 largest banks in the U.S. participated in the Comprehensive Capital Analysis and Review (CCAR), an annual exercise to evaluate the capital planning processes and capital adequacy of large financial institutions.

The Fed has approved the capital plans of 28 largest banks participating in the CCAR. It didn't reject the capital plan of the Bank of America Corporation, but was requiring the bank to submit a new capital plan by the end of the third quarter to address certain weakness in its capital planning processes.

The results released Wednesday are the Fed's second and final round for the annual stress test, determining whether lenders can withstand losses and still pay dividends, buy back stock or make acquisitions.

As the capital plans of the U.S. units of the Deutsche Bank and Banco Santander were rejected by the Fed, the two banks may not take any capital distribution unless permitted by the U.S. central bank.

"Our capital plan review helps ensure that the capital distribution plans of large banks will not compromise their ability to continue lending to businesses and households even during a period of serious financial stress," Fed governor Daniel K. Tarullo said in a statement Wednesday.

The U.S. banks have substantially increased their capital since the first round of stress tests by the Fed in 2009. The 31 banks' common capital ratio, which compares high-quality capital to risk- weighted assets, has more than doubled from 5.5 percent in the first quarter of 2009 to 12.5 percent in the fourth quarter of 2014.

These banks represent more than 80 percent of assets held by the U.S. banks, or 14 trillion U.S. dollars as of the fourth quarter of last year.

On March 5, the Fed announced all these 31 banks passed a 5 percent minimum hurdle for top-tier capital, which meant they have sufficient capital to absorb losses during a sharp and prolonged economic downturn. Endite