On 26 March 2014, the Board of Governors of the Federal Reserve System ("Federal Reserve Board") announced it has approved the capital plans of 25 bank holding companies participating in the Comprehensive Capital Analysis and Review ("CCAR"). The Federal Reserve Board objected to the plans of the other five participating firms - four based on qualitative concerns and one because it did not meet a minimum post-stress capital requirement.
Strong capital levels help ensure that banking organizations have the ability to lend to households and businesses and to continue to meet their financial obligations, even in times of economic difficulty. Now in its fourth year, the Federal Reserve Board in CCAR evaluates the capital planning processes and capital adequacy of the largest bank holding companies, including the firms' proposed capital actions such as dividend payments and share buybacks and issuances.
US firms have substantially increased their capital since the first set of government stress tests in 2009. The aggregate tier 1 common equity ratio, which compares high-quality capital to risk-weighted assets, of the 30 bank holding companies in the 2014 CCAR has more than doubled from 5.5% in the first quarter of 2009 to 11.6% in the fourth quarter of 2013, reflecting an increase in tier 1 common equity of more than $511 billion to $971 billion during the same period. That trend is expected to continue. All but two of the 30 participants in this year's CCAR are expected to build capital from the second quarter of 2014 through the first quarter of 2015. In the aggregate, the firms are expected to distribute 40% less than their projected net income during the same period. The 30 institutions in CCAR this year have a combined $13.5 trillion in assets, or approximately 80% of all US bank holding company assets.
The Federal Reserve Board's 2014 Comprehensive Capital Analysis and review is available at: http://www.federalreserve.gov/newsevents/press/bcreg/ccar_20140326.pdf.
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