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TEXT-S&P: bank capital build to slow after Fed stress test
March 20, 2012 / 3:22 PM / 6 years ago

TEXT-S&P: bank capital build to slow after Fed stress test

March 20 - It seems that efforts to strengthen earnings retention, raise
capital, and reduce risky assets over the past year have paid off for most large
U.S. banks, said an article published by Standard & Poor's Ratings Services,
titled Most U.S. Banks Passed The Fed's Stress Test, But Shareholder Returns
Could Limit Needed Capital Increases.	
On March 13, the Federal Reserve Board released the results of its 2012 	
Comprehensive Capital Analysis and Review (CCAR) for the 19 largest U.S. bank 	
holding companies (BHCs). Following these reviews, the Fed granted 14 of the 	
19 firms permission to follow their capital plans in full. The Fed didn't 	
release the results for the 2012 Capital Plan Review (CapPR) for an additional 	
11 BHCs, but some institutions have released their capital plans.	
As we've said before, we're wary of banks aggressively increasing capital 	
returns to shareholders while the economic recovery remains slow. "We believe 	
that more aggressive capital distributions will delay banks from raising the 	
amount of capital they will need to meet higher minimum international 	
regulatory standards prescribed by Basel III and to support loan growth," said 	
Standard & Poor's credit analyst Matthew Albrecht.	
We project capital needs for U.S. banks of $415 billion to $640 billion to 	
meet Basel III requirements under a range of scenarios that includes an 	
expected increase in lending by 2019.	
"We expect that the Fed's review will have neutral to negative ratings 	
implications for these banks, depending on the capital actions that management 	
teams undertake and the impact that they have on our capital and earnings 	
assessments," said Mr. Albrecht.	
"Ratings could come under pressure if bank officials become more aggressive in 	
their capital management as a result of the favorable outcomes of these 	
regulatory stress tests and if projected risk-adjusted capital ratios fall 	
below the ranges that we view as consistent with the banks' current capital 	
and earnings scores," said Mr. Albrecht. "Alternatively, if capital management 	
actions are roughly in line with our expectations after receiving Fed approval 	
for capital distributions, we expect the ratings impact to be neutral."	
Generally, we believe that financial institutions would benefit from 	
continuing to strengthen their capital in light of the still tough operating 	
conditions and new regulations.	
The report is available to subscribers of RatingsDirect on the Global Credit 	
Portal at If you are not a RatingsDirect 	
subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 	
or sending an e-mail to Ratings 	
information can also be found on Standard & Poor's public Web site by using 	
the Ratings search box located in the left column at 	
Members of the media may request a copy of this report by contacting the media 	
representative provided.

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