The Weakest Links in Fed's Stress Tests
March 27, 2014 1:26 PM
The Federal Reserve Board's stress tests left a fair amount of blood on the floor for banks. Twenty-five of 30 passed, but the central bank rejected the capital plans of four banks based on qualitative factors, rather than straight-up numbers. Only one bank failed both rounds of stress tests based on its numerical score. Following are the banks that fared poorly:
Image: Bloomberg News
Citibank
Citigroup passed the numerical part of the stress tests but the Fed rejected its capital plan anyway due to concerns about its planning processes. The central bank said Citi had failed to correct a number of previously identified issues and was unable to properly project revenue and losses under a stressful scenario. CEO Michael Corbat said the bank was "being challenged to meet the highest standards" in the stress tests.
Image: Bloomberg News
Zions
Zions Bancorp. was the only institution to fail both rounds of stress tests: the one required under the Dodd-Frank Act and the separate assessment conducted by the central bank. It received the lowest numerical scores in both tests, well below the minimum requirements. As a result of the Volcker Rule, the bank was forced to recognize losses on its collateralized debt obligations. Zions has said it plans to resubmit its capital plan.
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HSBC
HSBC, which took the stress tests for the first time this year, had its capital plan rejected by the Fed due to inadequacies in estimating revenue and losses for "material aspects" of the firm's operations under stress. A spokesman said the bank remains well capitalized.
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RBS
Like several others, RBS Citizens' had its capital plan rejected because it had problems estimating revenue and losses under a stressed scenario. "We clearly have more work to do to meet the Fed's standards, and we're fully committed to doing that," said Bruce Van Saun, its chairman and CEO.
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Santander
Santander was projected in the latest round of stress tests to hold 7.9% capital under the Fed's worst-case scenario, but the bank did not pass muster. The central bank cited "widespread and significant deficiencies" across Santander's capital planning process. The bank said it will to resubmit its plan.
Image: Bloomberg News
Bank of America
Bank of America nearly missed the mark in getting its capital plan approved after falling below the required minimum leverage ratio and risk-based capital ratio, based on what it planned to return to shareholders. It was one of two firms to adjust its capital plan in order to gain Fed approval.
Image: Bloomberg News
Goldman Sachs
Goldman Sachs was the second firm to revise its capital plan after it missed a single regulatory mandate: a 4% leverage requirement.
Image: Bloomberg News
