WASHINGTON — The Federal Reserve on Thursday dealt a blow to JPMorgan Chase & Co. and Goldman Sachs Group Inc., citing weaknesses in their capital planning that require “immediate attention,” which could affect their plans to return capital to shareholders.
While both banks would likely be able to withstand a sharp economic downturn with adequate capital cusions, a senior Fed official said there were concerns about the banks’ ability to adequately estimate losses in the face of a severe economic event. The Fed did not explicitly reject the two banks’ plans to distribute capital, but both are required to resubmit their plans to the central bank this year.
In all, 14 of the 18 largest U.S. banks received Fed approval for their plans to distribute capital to shareholders as part of the second step in the Fed’s annual “stress test” of the biggest banks. Two firms, Ally Financial Inc. and BB&T Corp., had their plans rejected and will not be allowed to proceed, the Fed said.
“The financial crisis showed not only that regulators needed to increase capital requirements and conduct regular stress tests, but also that firms need strong internal processes to evaluate their own capital needs based on their individual risks and circumstances,” Fed Gov. Daniel Tarullo said in a statement.
