Fed's 2nd round of stress tests done in groups

CHARLOTTE, N.C. Fri Jan 21, 2011 11:51pm IST

Morning commuters drive past the Federal Reserve Bank building in Washington March 18, 2009.  REUTERS/Jonathan Ernst/Files

Morning commuters drive past the Federal Reserve Bank building in Washington March 18, 2009.

Credit: Reuters/Jonathan Ernst/Files

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CHARLOTTE, N.C. (Reuters) - The Federal Reserve is splitting stress tests for the 19 largest U.S. banks into two groups, depending on when the lenders want to increase their dividend in 2011, Bank of America Corp Chief Financial Officer Charles Noski said.

In an interview with Reuters on Friday, Noski said the U.S. central bank was first reviewing the capital plans for banks that want to raise dividends by mid-year 2011.

Banks that are targeting a dividend increase for the second half of the year will have their test results released later as part of a second group. Lenders in this group may have to submit supplemental financial information, Noski said.

U.S. regulators conducted a first round of stress tests in the spring of 2009 to test the adequacy of capital reserves at big banks and to pave the way for the return of private capital after they took billions of dollars in taxpayer rescue funds.

Bank of America, the largest U.S. bank by assets, plans to raise its dividend, now at 1 cent per share, in the second half of 2011, if it receives Fed approval.

The bank slashed the quarterly shareholder payout after receiving $45 billion in U.S. government bailout aid at the height of the financial crisis in 2008.

Noski said the bank planned a "modest increase" in the shareholder payout, but declined to say what the increase would be.

BofA reported on Friday a fourth-quarter shareholder loss of $1.57 billion.

On Jan. 14, Fed Governor Daniel Tarullo said the central bank wants lenders to be careful about raising dividends during the modest economic recovery.

"There are still risks out there," Tarullo said in an interview with financial news network CNBC.

Banks would have to show they can absorb losses over the next two years, Tarullo said, and comply with new banking industry capital rules.

(Reporting by Joe Rauch; Editing by Lisa Von Ahn and Tim Dobbyn)

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