Fed Rejects Capital Plans of Citi, Four Others
By Donna Borak
The Federal Reserve Board denied Citigroup Inc.’s capital plan on Wednesday, saying it had failed to make sufficient improvements to a number of deficiencies in its capital planning processes. Citi was one of five firms to have its capital plan rejected by the central bank as part of the Fed’s annual stress test exercise known as the Comprehensive Capital Analysis Review, or CCAR. Four banks — HSBC North America, RBS Citizens Financial, Santander and Citi — were rejected for “qualitative” reasons, while Zions Bancorp. failed to meet the Fed’s minimum Tier 1 common capital ratio under a hypothetical severely adverse economic scenario. The five firms will have up to 90 days to resubmit their capital plans, but can request additional time if needed. The 25 other firms that were part of the stress test, which evaluates the individual capital plans of the 30 largest institutions, had their capital plans approved.”With each year we have seen broad improvement in the industry’s ability to assess its capital needs under stress and continuing improvements to the risk-measurement and -management practices that support good capital planning,” said Fed Gov. Daniel Tarullo, in a press release. “However, both the firms and supervisors have work to do as we continue to raise expectations for the quality of risk management in the nation’s largest banks.” Analysts said the Fed’s rejection of Citi and three others on qualitative grounds was significant. “This is a very different experience than the ones in the past,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics Inc. “Quality counts more than capital.” She called the Fed’s rejection of Citi plan a “real smack in the face” given the growing critical importance of governance in these stress test exercises.