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 www.globalcreditportal.com. 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 firstname.lastname@example.org. 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 www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.