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Press Release
November 17, 2010

Federal Reserve issues guidelines for capital
action proposals by large bank holding
companies
For immediate release
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The Federal Reserve Board on Wednesday issued guidelines for
evaluating proposals by large bank holding companies (BHCs) to
undertake capital actions in 2011, such as increasing dividend payments
or repurchasing or redeeming stock. The criteria provide a common,
conservative approach to ensure that BHCs hold adequate capital to
maintain ready access to funding, continue operations, and continue to
serve as credit intermediaries, even under adverse conditions.
The criteria for evaluating capital distributions are outlined in a revised
temporary addendum to Supervision and Regulation letter 09-4,
"Dividend Increases and Other Capital Distributions for the 19
Supervisory Capital Assessment Program Firms." The guidelines state
that any capital distribution plan will be evaluated on the basis of a
number of criteria, with particular emphasis on:
the firm's ability to absorb losses over the next two years under
several scenarios, including an adverse macroeconomic scenario
specified by the Federal Reserve and adverse scenarios
appropriate for a particular firm's business model and portfolios;
how the firm will meet Basel III capital requirements as they take
effect in the United States, in the context of the proposed capital
distributions as well as any anticipated impact of the Dodd-Frank
Wall Street Reform and Consumer Protection Act on the firm's

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business model or capital adequacy; and
the firm's plans to repay U.S. government investments, if
applicable. BHCs are expected to complete the repayment or
replacement of any U.S. government investments in the form of
either preferred shares or common equity prior to increasing
capital payouts through higher dividends or stock buybacks.
The Federal Reserve expects to respond to capital distribution requests
beginning in the first quarter.
The Federal Reserve will evaluate requests for planned capital actions
in the context of its broader process for assessing capital adequacy at
the largest BHCs. As part of the regular supervisory process, the
Federal Reserve is requesting that large U.S. BHCs submit
comprehensive capital plans by early next year, regardless of whether a
capital action is planned. The capital plan review is the latest step in the
Federal Reserve's efforts to enhance supervision of banking
organizations. As recognized by the Dodd-Frank Act and demonstrated
by the Federal Reserve-led Supervisory Capital Assessment Program in
2009, regular, horizontal reviews across groups of firms provide
regulators with both firm-specific and industry-wide perspectives of
various issues and trends. The Federal Reserve plans to undertake
these capital plan reviews on a regular basis and will consult with
primary federal bank regulators.
SR Letter 09-4

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Last Update: November 17, 2010

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BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM
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