BB&T Corp. did not pass a key Federal Reserve "stress test" last week, after Fed officials objected to portions of the company's capital planning process.
While regulators found the bank was financially strong, officials found fault with other aspects of the bank's planning processes. BB&T now plans to submit a revised plan that the company says will meet the Fed's objections.
Last week's announcement was part of the Fed's annual Comprehensive Capital Analysis and Review, a so-called "stress test" that tries to predict how well banks would fare during an economic downturn.
They're designed to test whether the bank has enough capital to buffer unexpected losses that could happen during a recession.
As a result of the tests, the Fed also tells each bank whether it's allowed to raise its dividend or buy back more of its own shares.
The tests are a direct response to the financial crisis that seized up credit markets in 2008 and brought the economy to a grinding halt. They are conducted on all U.S. banks that have more than $50 billion in assets.
"The financial crisis showed not only that regulators needed to increase capital requirements and conduct regular stress tests, but also that firms need strong internal processes to evaluate their own capital needs based on their individual risks and circumstances," Federal Reserve Gov. Daniel Tarullo said in a statement last week.
Earlier this month, the Fed released results of stress tests conducted under guidelines of the Dodd-Frank financial reform act. That stress test found BB&T to be most well capitalized traditional bank in the U.S.
The Comprehensive Capital Analysis and Review, however, is a more thorough test that factors in not only a bank's current assets, but also future capital spending plans, including stock buybacks and dividend payouts.
The CCAR also evaluates using both quantitative - meaning, by the numbers - and qualitative factors.
The qualitative factors include matters such as corporate governance, risk management policies and other aspects of the bank's capital planning process.
BB&T passed the Fed's quantitative criteria, meaning it would have sufficient capital to survive an economic downturn.