Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The Federal Reserve Board has issued a final rule requiring top-tier U.S. bank holding companies with total consolidated assets of $50 billion or more to submit annual capital plans for review. 

Also, the Federal Reserve launched the 2012 review, issuing instructions to the firms, including the macroeconomic and financial market scenarios the Federal Reserve is requiring institutions to use to support the stress testing used in their capital plans. As a part of the review, known as the Comprehensive Capital Analysis and Review, or CCAR, the Federal Reserve in 2012 will carry out a supervisory stress test based on the same stress scenario provided to the firms to support its analysis of the adequacy of the firms’ capital.

The Fed believes the aim of the annual capital plans, which build on the CCAR conducted earlier this year, is to ensure that institutions have robust, forward-looking capital planning processes that account for their unique risks, and to help ensure that institutions have sufficient capital to continue operations throughout times of economic and financial stress. According to the Fed, institutions will be expected to have credible plans that show they have sufficient capital so that they can continue to lend to households and businesses, even under adverse conditions, and are well prepared to meet regulatory capital standards agreed to by the Basel Committee on Banking Supervision as they are implemented in the United States. Boards of directors of the institutions will be required each year to review and approve capital plans before submitting them to the Federal Reserve. 

Under the final rule, the Federal Reserve annually will evaluate institutions’ capital adequacy, internal capital adequacy assessment processes, and their plans to make capital distributions, such as dividend payments or stock repurchases. The Federal Reserve will approve dividend increases or other capital distributions only for companies whose capital plans are approved by supervisors and are able to demonstrate sufficient financial strength to operate as successful financial intermediaries under stressed macroeconomic and financial market scenarios, even after making the desired capital distributions.

The capital planning requirements are consistent with the Federal Reserve’s obligations to impose enhanced capital and risk-management standards on large financial firms under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

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