Largest banks meet Fed expectations for capital planning

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The nation’s largest banks have strong levels of capital, and most are meeting supervisory expectations for capital planning, the Federal Reserve Board reported last week.

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Consequently, as part of its annual Comprehensive Capital Analysis and Review (CCAR) review, it is not objecting to the capital plans of all 18 firms. However, it requires one firm, Credit Suisse, to address limited weaknesses identified from the test.

The CCAR evaluates the capital planning processes and capital adequacy of 18 of the largest banking firms. Stable capital levels are important because they act as a cushion to absorb losses and help ensure that banking organizations can lend to households and businesses even in times of stress.

“The stress tests have confirmed that the largest banks are both well capitalized and place a high priority on strong capital planning practices,” Fed Vice Chair for Supervision Randal Quarles said. “The results show that these firms and our financial system are resilient in normal times and under stress.”

The Fed looks at both quantitative and qualitative factors when evaluating a bank’s capital plan. Quantitative factors include a bank’s projected capital ratio under a hypothetical severe recession while qualitative factors include risk management, internal controls, and governance practices.

If the board objects to a firm’s capital plan, the bank cannot make any capital action unless authorized by the board. The firms in the test have significantly increased their capital since the first round of stress tests in 2009.

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