Alert December 06, 2011

FRB Issues Final Rule Regarding Stress Tests and Capital Requirements for Large Bank Holding Companies

The FRB has issued a final rule (the “Final Rule”) requiring bank holding companies with total consolidated assets of $50 billion or more to submit annual capital plans for review.  The FRB also released two sets of instructions for such bank holding companies to conduct stress testing for their capital plans – one set of instructions for the 19 bank holding companies that have previously conducted a stress test and another set of instructions for the 12 bank holding companies with total consolidated assets of $50 billion or more that have not previously conducted a stress test.  Institutions will be required to submit their capital plans by January 9, 2012.

Under the Final Rule, the FRB stated that annually it will evaluate institutions’ capital adequacy, internal capital adequacy assessment processes, and their plans to make capital distributions, such as dividend payments or stock repurchases.  The FRB further stated that it will approve dividend increases or other capital distributions only for bank holding companies whose capital plans are approved by federal banking supervisors and are able to demonstrate sufficient financial strength to operate as successful financial intermediaries under stressed macroeconomic and financial market scenarios, even after making the desired capital distributions.