EUROPEAN banks have failed the Federal Reserve’s stress tests.
The US central bank objected to the capital plans of the US operations of both Deutsche Bank and Santander. The Fed said its objections were made “on qualitative concerns” rather than quantitative.
All the large US banks passed the tests, which were introduced in 2009. However, the Federal Reserve said that, while it did not object to the Bank of America’s capital plan, it is requiring the institution to submit a new capital plan by the end of the third quarter “to address certain weaknesses in its capital planning processes”.
Daniel Tarullo, Federal Reserve governor, said: “Our capital plan review helps to ensure that the capital distribution plans of large banks will not compromise their ability to continue lending to businesses and households even during a period of serious financial stress. It also provides a structured assessment of their risk management capacities.”
The tests assess whether or not banks will survive periods of financial upheaval. They also look at firms’ planned capital actions such as dividend payments and share buybacks and issuances.