Fed rejects portion of BB&T capital planning process
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.
However, the Fed rejected BB&T's capital plan due to qualitative reasons.
Regulations bar both the Fed and BB&T from revealing exactly what specific faults officials found in BB&T's plan, but the company said last week it plans to file a revised capital plan that should satisfy regulators.
"BB&T plans to resubmit its capital plan as soon as feasible, and expects that its resubmitted plan will address the factors which led to the Fed's objections," the company said in a statement.
According to The Associated Press, the Fed noted BB&T announced this month it has changed the way it calculates certain assets. That means its capital ratios would be lower than what the Fed had predicted in the CCAR report, which used data BB&T submitted to the Fed in January.
BB&T chairman and chief executive officer Kelly King said even though the Fed objected to the company's capital plan, it did not object to the company's $.23 per share quarterly dividend, which was increased 15 percent in the first quarter.
"This reflects the strength of our financial position," King said. "We remain strongly committed to our shareholders and are proud to have one of the strongest dividend yields and highest payout rates in the industry."
BB&T wasn't the only bank to have its capital plan rejected by the Fed last week.
Regulators also rejected the capital plan of Ally Financial, the former financial arm of General Motors. Unlike BB&T, Ally's plan was rejected because the bank did not meet minimum capital ratios required to pass the stress test.
The Fed also conditionally approved capital plans for New York-based banks Goldman Sachs JP Morgan Chase, provided they submit new capital plans by the end of the third quarter that address weaknesses in their capital planning processes.
The Associated Press contributed to this article.