“The Federal Reserve Thursday dealt a blow to J.P. Morgan Chase JPM +1.65% & Co. and Goldman Sachs Group Inc., GS +1.37% citing weaknesses in their “stress test” capital planning that could hamper their funneling more dividends and share buybacks to investors.
The central bank also denied capital plans submitted by BB&T Corp.BBT +0.50% and Ally Financial Inc. But the Fed at the same time cleared 14 other banks to boost payouts to shareholders, including Citigroup Inc.C +1.03% and Bank of America Corp.,BAC +0.41% both of which in past years had capital requests rejected by the central bank.
The Fed also approved a reduced repurchase plan from American Express Co., AXP +0.12% in the only instance of a bank winning approval for a plan resubmitted to the regulator under a new stress-test wrinkle this year.
The Fed said the results show the banking system has grown stronger since the financial crisis, in large part because banks and securities firms are paying out less than they did before the 2008 meltdown.
The actions underscore the government’s increased role in the banking sector since the financial crisis. Regulators over the last few years have pushed banks to build up capital buffers and improve risk management to more realistically account for potential losses.
“The financial crisis showed not only that regulators needed to increase capital requirements and conduct regular tests, but also that firms need strong internal processes to evaluate their own capital needs based on their individual risks and circumstances,” Fed governor Daniel Tarullo said in a statement….”
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