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The U.S. Federal Reserve on Wednesday rejected the capital plan of Citigroup Inc. on " qualitative concerns" as part of its annual comprehensive capital checkup based on stress test result.
Citigroup's rejection was based on deficiencies in the bank's capital-planning practices, including its ability to project revenue and losses under a stressful scenario for material parts of its global operations, the Fed said.
Besides Citigroup, the Fed also objected to capital plans of HSBC North America Holdings Inc., and three other institutions including Zions Bancorporation which failed to meet the minimum capital ratio requirement in the stress test.
When considering an institution's capital plan, the Fed considers both qualitative and quantitative factors. It can object to a capital plan based on either assessment, or both.
Meanwhile, the Fed approved the capital plans of the other 25 financial institutions which took part in the stress test. Bank of America and Goldman Sachs got the approval only after they adjusted their capital actions.
In its fourth year, the Fed evaluates the capital planning processes and capital adequacy of the largest bank holding companies, including the firms' proposed capital actions such as dividend payments and share buybacks and issuances.
After the Fed objects to a capital plan, the financial institution may only make capital distributions with prior written approval from the Fed. The five banks that failed to get their plans approved Wednesday may continue to pay dividend at previous year's level.
The Fed released results of the annual stress test of 30 large financial institutions last week and concluded that 29 of them had adequate capital buffers to withstand severely adverse economic scenario. It noted that U.S. banks have substantially increased their capital since the first set of government stress tests in 2009.
