* In letter to Bernanke, lawmakers question capital
* Next round of bank stress tests praised by lawmakers
(Adds details from letter, background, bylines, CHARLOTTE to
By Kevin Drawbaugh and Joe Rauch
WASHINGTON/CHARLOTTE, N.C., Feb 15 Seven U.S.
Democratic lawmakers expressed concern on Tuesday that big
banks, some of which are still benefiting from government
financial support, plan to boost their dividends and reduce
"It seems hard to justify reducing the capital of banks
without considering the continued government support that banks
with outstanding guarantees enjoy," the lawmakers said in a
letter to Federal Reserve Chairman Ben Bernanke.
The lawmakers praised the Fed for organizing a second round
of "stress tests" on the capitalization of big banks.
"We are concerned, however, that the result of the new
stress tests may be that some of the 19 banks will be permitted
to increase dividends or repurchase stocks as early as the
second quarter of this year," they said.
The letter, obtained by Reuters, was signed by Brad Miller,
Maxine Waters, George Miller and four other House Democrats,
most of them members of the House Financial Services Committee,
which oversees banks and Wall Street.
U.S. regulators did a first round of stress tests in early
2009 on the adequacy of capital reserves at big banks while the
devastating banking crisis of late 2008 and the massive
bailouts that followed were still fresh.
Another round of stress tests is being organized by the
Fed. Bank of America Corp (BAC.N) Chief Financial Officer
Charles Noski said last month that the Fed is splitting tests
for the 19 largest U.S. banks into two groups, depending on
when the banks want to boost their dividends in 2011.
The largest U.S. banks slashed their dividends at the
height of the crisis in fall 2008 after getting billions of
dollars in government bailouts.
Investors have been pushing for a return of the quarterly
payouts now that many of the largest banks have repaid the aid
and are posting consistent profits.
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.
In their letter to Bernanke, the lawmakers said some of the
nation's largest banks, including Bank of America, JPMorgan
Chase (JPM.N), Citigroup (C.N) Morgan Stanley (MS.N) and
Goldman Sachs (GS.N) still benefit from the government's
Temporary Liquidity Guarantee Program set up in the crisis.
Fed Governor Daniel Tarullo last month said the central
bank wants lenders to be careful about raising dividends during
the modest economic recovery.
Lower capital at banks that still have TLGP guarantees "may
put the FDIC at greater risk," the lawmakers said in the
letter, also sent to Treasury Secretary Timothy Geithner.
In addition, banks face uncertainty about possible losses
on flawed mortgage-backed securities and on the valuations of
some of their assets, they said.
"Again, we applaud your undertaking new stress tests ... It
appears doubtful, however, that the stress tests alone can
sufficiently resolve the uncertainty facing those banks to
justify reducing their capital."
(Reporting by Kevin Drawbaugh; Additional reporting by Joe
Rauch in Charlotte, North Carolina, editing by Dave Zimmerman)