Santander Holdings USA entered into a written agreement with the Federal Reserve Bank of Boston about managing capital payments after one of its units issued an unauthorized dividend.

The agreement, dated Sept. 15, requires Santander's board to submit to the Fed written procedures to strengthen its oversight of management regarding planned capital distributions. The Fed objected earlier this year to Santander's capital plan on qualitative grounds during the stress test exercise known as the Comprehensive Capital Analysis Review, or CCAR.

During that process, the central bank had only approved Santander to make quarterly payments on certain preferred stock, the agreement said. Still, Santander Consumer USA Holdings and Santander Consumer USA, two nonbank subsidiaries in Dallas that are majority-owned by Santander, declared a cash dividend on its common stock in the second quarter. This was not authorized by the Fed, according to the agreement.

The move decreased Santander's consolidated capital and its Spanish parent company, Banco Santander, had to make a $21 million payment to Santander to offset the distribution.

Now Santander Holdings must serve as a source of strength for its banking unit, the agreement said. Senior management must review all planned capital distributions while the company must keep minutes of all board and committee meetings regarding capital distributions.

The company also cannot pay any dividends without prior approval of the Fed. Requests to pay dividends must include current and projected capital, earnings and cash flow.

Santander is still waiting to receive a non-objection from the central bank on its capital plan, according to the agreement.

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