The U.S. Federal Reserve Board said Thursday it has rejected the capital plans of two large banks, restricting their ability to pay dividends.
The Fed announced that, as part of its process to evaluate banks’ capital plans, it objected to the plans of Ally Financial, Inc. and BB&T Corp., which means that they can only make capital distributions with Fed approval.
Additionally, while it did not object to the capital plans for Goldman Sachs Group, Inc. and JPMorgan Chase & Co., it is requiring them to submit new plans by the end of the third quarter to address weaknesses in their capital planning processes. And, it approved the plans of the 14 other financial institutions it examined.
In its Comprehensive Capital Analysis and Review (CCAR) process, the Fed evaluates the capital planning processes and capital adequacy of the largest banks, including the firms’ proposed capital actions, such as dividend payments and share buybacks and issuances. The Fed says that it considers both qualitative and quantitative factors when evaluating these plans, including a firm’s capital ratios under severe economic and financial market stress, the strength of its capital planning process, and the institution’s plans to meet new Basel 3 capital requirements.
“Now in its third year, the Federal Reserve’s review of capital plans provides a regular, structured, and comparative way to promote and assess the capacity of large bank holding companies to understand and manage their capital positions, with particular emphasis on risk-measurement practices,” said Fed governor, Daniel Tarullo.
“The financial crisis showed not only that regulators needed to increase capital requirements and conduct regular stress tests, but also that firms need strong internal processes to evaluate their own capital needs based on their individual risks and circumstances,” he added.