Nov 9 The Federal Reserve released instructions
on Friday for the next tests to determine how big banks would
weather a market shock, with a tweak to the rules that allows
banks to adjust proposed dividend payments or stock repurchases
if their first plans are rejected.
Stress tests are considered a crucial part of the Fed's
oversight of the biggest banks in the aftermath of the 2007-2009
financial crisis. The tests try to determine how banks would
withstand another financial crisis.
"The Federal Reserve has been focused - and will remain
focused - on ensuring the nation's largest financial
institutions have enough capital to weather severe, unexpected
conditions and still continue lending to households and
businesses," Fed Board Governor Daniel Tarullo said in a
Unlike previous tests, the Fed said it would give banks one
shot to adjust plans to repurchase stock or boost dividends
after the regulator's initial assessment of the capital plan.
Citigroup ran into trouble after last year's stress tests
when the Federal Reserve turned down its plan to return capital
to shareholders. The firm had been expected to be able to raise
its quarterly dividend.
The Fed said it would release on Nov. 15 the scenarios that
will be used in the next round of stress tests.
Last year's shock scenarios involved a hypothetical
deterioration of the European debt crisis, spiking unemployment
and U.S. gross domestic product falling by as much as 8 percent.
The firms tested this year will include banks that were part
of the initial stress testing program, plus other firms with
more than $50 billion in assets. Smaller banks will have more
time before they must participate.