Fed Announces Annual Capital Review of Biggest Banks
The Federal Reserve Board on November 22 issued a final rule requiring the nation's largest bank holding companies to submit annual capital plans for Fed review.
The Federal Reserve will evaluate institutions with at least $50 billion in consolidated assets for capital adequacy and will examine the firms' internal capital assessment processes and their plans to make capital distributions, such as dividend payments or stock repurchases.
Criteria for capital distributions set
Boards of directors of the institutions will be required to review and approve annual capital plans before submitting them to the Federal Reserve.
Anticipating future stress tests
The economic and markets scenario is not the Federal Reserve's economic forecast. Rather, it is meant to represent an outcome that, while unlikely, could materialize if the U.S economy and other major economies simultaneously fall into a deep recession.
Capital is central to a bank holding company's ability to absorb unexpected losses and continue to lend to creditworthy businesses and consumers. The Federal Reserve expects large, complex bank holding companies to hold sufficient capital to maintain access to funding, continue to serve as credit intermediaries, meet their obligations to creditors and counterparties, and continue operations, even in an adverse environment.
November 30, 2011