WASHINGTON — The 19 largest financial institutions will be required to submit to the Federal Reserve Board a capital plan by 2011 that will show their ability to absorb losses under financial stress.
The Fed issued the guidance on Wednesday detailing how it would evaluate proposals by large bank holding companies to undertake capital actions next year, including issuing dividends, stock buybacks and redeeming stock.
"The criteria provide a common conservative approach to ensure that BHCs hold adequate capital to maintain ready access to funding, continuing operations, and continue to serve as credit intermediaries, even under adverse conditions," the Fed said.
Among the key criteria, the Fed will require banks to explain how it will meet Basel III capital requirements; the firm's ability to absorb losses over the next two years, including under adverse macroeconomic scenario, and the firm's plan, if applicable, to repay U.S. government investments.
The central bank said it expects to respond to capital distribution requests starting in the first quarter of 2011.
