WASHINGTON — Bank holding companies that need an additional capital buffer will have until June 8 to develop a detailed capital plan, and until Nov. 9 to implement the plan, federal regulators said Wednesday.
In a joint release offering more details on the stress tests regulators conducted at the 19 largest banks, the regulators said in order to pass the test, each bank holding company had to achieve a Tier 1 risk-based capital ratio of at least 6%, and a common risk-based ratio of at least 4%, by the end of 2010.
The release said the banks' capital plans would contain three main elements: a detailed description of specific actions to be taken to increase the level of capital, a list of steps to address weaknesses in the holding companies' capital assessment, and an outline of how the holding companies plans to repay government funds.
Regulators said the options for satisfying the capital buffer could include new private capital, restructuring current capital, selling of business lines, entities, or assets, joint ventures or spinoffs, or conversion of internal capital generations, including restrictions on dividends, stock repurchases and dividend referrals.
Holding companies must also "review their existing management and board in order to assure that the leadership of the firm has sufficient expertise and ability to mange the risks" presented by the crisis.
The Treasury Department said it would make capital available under its Capital Assistance Program as a bridge to private capital. Banks may apply for capital of up to 2% of risk-weighted assets (or higher upon request) in the form of mandatory convertible preferred shares from Treasury. The new capital must be accompanied by new capital raises or exchanges of private capital securities into common equity.
In the release, regulators made it clear they did not intend to extend the stress tests beyond the 19 largest companies, but said any firm may apply for additional capital.
Regulators also laid out more criteria for repaying initial infusions of Troubled Asset Relief Program funds. Regulators will weigh any request to repay Tarp against the bank's overall soundness, capital adequacy and its ability to lend.
For the 19 banks undergoing the stress tests wishing to repay Tarp, they must have a post-repayment capital base consistent with their capital buffer and be able to demonstrate their strength by issuing senior unsecured debt for at least five years not backed by the government guarantees.
The results of the stress tests, which examined banks under expected economic conditions over the next two years under baseline and adverse scenarios, are expected to be released this afternoon.
