Fed signs off on most banks' capital plans

The Federal Reserve signed off on the capital plans of most of the nation’s biggest banks Wednesday, allowing those institutions to begin to return profits to investors.

The Fed announced that 30 banks passed its annual “stress tests” and as such would be able to reward investors with dividends and share buybacks. Some of the biggest names in finance, including Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase were among those that received the seal of approval from regulators.


However, the Fed rejected the capital plans of two banks, Deutsche Bank and Santander Holdings, saying it had “qualitative concerns” about their respective approaches.

A third bank, Morgan Stanley, received a mixed review. The Fed did not object to its plan but ordered it to submit a revised strategy by the end of the year to address “certain weaknesses in its capital planning process.”

The Fed said the broad approval of the banking sector is a sign of its renewed strength since the financial crisis. The central bank said financial institutions have “substantially increased” their capital buffers since new rules were put in place to guard against another financial collapse.

“The participating firms have strengthened their capital positions and improved their risk-management capacities," said Fed Governor Daniel Tarullo. "Continued progress in both areas will further enhance the resiliency of the nation's largest banks."

The financial industry took a victory lap following Wednesday's results, saying the broad approval proved the strength of the sector, years after the meltdown.

"These results, as well as a variety of other factors, demonstrate the resiliency of the financial sector as a source of stability and potential growth in the economy," said Francis Creighton, executive vice president of government affairs for the Financial Services Roundtable.

"The U.S. banking system has never been stronger and is now able to withstand the shock of even the highly unlikely severely adverse scenario imposed by [regulators]," said John Dearie, acting CEO of the Financial Services Forum.

The Fed's stress tests involve seeing how major financial institutions would respond to hypothetical situations of serious economic instability. The regulator also considers more abstract factors, such as how a bank manages its risk, when weighing how resilient a bank could be.

Updated at 4:55 pm.