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Senior Fed officials said there were different reasons behind their objections to Ally and BB&T. It found that a key capital ratio of Ally's would be just 1.5 percent if it proceeded with its capital plans as requested, then suffered a severe recession. The government wanted that ratio to be at least 5 percent. The reason for BB&T's rejection was less obvious. Under those circumstances, the bank would have a capital ratio of 7.8 percent, according to the Fed's calculations
-- well within the requirements. The Fed said it rejected BB&T's request for "qualitative" reasons. It didn't give specifics, but that includes measures such as the Fed's assessment of a bank's capital planning process. The Fed also noted that BB&T had announced this month that is has changed the way it calculates certain assets. That means its capital ratios would be lower than what the Fed had predicted in the stress test report, where it used data that BB&T submitted in January. The dividends and share buybacks that the Fed was mulling are important to ordinary investors, and banks. The banks know that their investors suffered big losses in the financial crisis, and are eager to mollify them. Some stockholders, especially retirees, rely on dividends for a portion of their income. Buybacks are also aimed at helping stockholders. By reducing a company's number of outstanding shares, earnings per share can increase. Both New York-based Citigroup Inc. and Bank of America Corp., based in Charlotte, N.C., said they had received permission to buy back stock. Neither asked to raise their dividends, which are stuck at 1 penny per quarter
-- token amounts that they had to drop to when they were bailed out. Both have also been slimming down, getting rid of unwieldy units to become more manageable and profitable. "We have simplified our company and we have more than adequate capital to support our strategic plans," said Brian Moynihan, Bank of America's CEO since 2010. The tests are a reminder of how the government has expanded its power over the banking industry, and how much has changed because of it. The Fed said that the 18 examined banks paid out 19 percent of their profits in shareholder dividends last year
-- half of what they paid out in 2006, before the financial crisis. The stress tests have a variety of detractors. Some say they're too hard. Many of the banks have released their own calculations for how they'd fare under the distressed scenario the Fed describes, and have projected they'd fare better than the Fed predicted. Critics on the other side say the tests are too easy, and that the Fed is concerned less with rigorous accountability and more with reassuring the public about the state of the industry.
[Associated
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