The Federal Reserve Board last week issued a final rule requiring U.S. bank holding companies with total consolidated assets of $50 billion or more to submit annual capital plans for review.
In addition, the Federal Reserve launched the 2012 review, issuing instructions to the firms, including the macroeconomic and financial market scenarios the Federal Reserve is requiring institutions to use to support the stress testing used in their capital plans. As a part of the review, known as the Comprehensive Capital Analysis and Review (CCAR), the Federal Reserve in 2012 will carry out a supervisory stress test based on the same stress scenario provided to the firms to support its analysis of the adequacy of the firms' capital.
The Fed says the dual aim of the annual capital plans is to ensure that financial institution's capital planning processes account for their unique risks and ensure that the firms have sufficient capital to continue operations during bouts of economic and financial stress.
According to the Fed, financial institutions will be expected to have "credible plans" demonstrating their ability to lend to households and businesses under adverse conditions. Banking holding companies should also be well prepared to meet regulatory capital standards agreed to by the Basel Committee on Banking Supervision as they are implemented in the U.S., the Fed says.
Under the final rule, the Federal Reserve annually will evaluate institutions' capital adequacy, internal capital adequacy assessment processes, and plans to make capital distributions, such as dividend payments or stock repurchases.