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Fed objects to capital plans of two large U.S. banks in stress tests

Xinhua, June 30, 2016 Adjust font size:

The Federal Reserve has objected to two large U.S. banks' capital plans in the second part of its annual stress tests, the central bank announced Wednesday.

The U.S. banking subsidiaries of Deutsche Bank AG and Banco Santander SA have their capital plans rejected due to "broad and substantial weaknesses" in their capital planning processes, according to the results of the Fed's Comprehensive Capital Analysis and Review (CCAR), an annual exercise to evaluate the capital planning process and capital adequacy of large U.S. banks.

The Fed did not object to Morgan Stanley's capital plan, but required the bank to submit a new capital plan by the end of the fourth quarter of 2016 to "address certain weaknesses in its capital planning processes," the central bank said in a statement.

The other 30 large U.S. banks participated in the stress tests got the green light from regulators to issue dividends to investors or make share buybacks, the Fed said.

"Over the six years in which CCAR has been in place, the participating firms have strengthened their capital positions and improved their risk-management capacities," Fed board governor Daniel Tarullo said in a statement. "Continued progress in both areas will further enhance the resiliency of the nation's largest banks."

This is the sixth round of stress tests led by the Fed since 2009 to measure large U.S. banks' ability to respond to economic and market turbulence. The 33 largest U.S. banks participated in the stress tests represent more than 80 percent of U.S. domestic banking assets.

Last week, all the 33 banks passed the first part of this year's stress tests with capital ratios well above the minimum requirement set by regulators, even in the most severe scenario of a hypothetical economic recession. Endit