Banking

Capital One Struggles Through Fed's Annual Stress Test

Capital One Financial was the sole bank among the U.S. ones to struggle through the Federal Reserve’s annual stress tests, with the bank receiving conditional approval to distribute capital to investors.

According to a report in Bloomberg News, 33 banks flew pass the review and as a result should pay out more to investors than analysts anticipate. Capital One, however, was ordered to increase its risk oversight to address what the Federal Reserve said was material weaknesses. It has to resubmit a plan for how it will manage its capital by Dec. 28, noted the report.

A Fed official told Bloomberg the banks who were put through the stress test are likely to pay out close to 100 percent of their projected earnings over four quarters, higher than the 65 percent in last year’s stress tests. It marks the first time all of the banks passed their stress tests since they began back in 2008 amid the financial crisis.

With the results on the books, dividends might return to the levels seen before the crisis. Analysts think banks will have total payouts of 86 percent of earnings, noted Bloomberg. “Many firms continued to improve their capital planning practices,” the Fed wrote in the report.

The report noted the problems with Capital One came as a surprise to Wall Street analysts, since many had thought it would be Wells Fargo that wouldn’t pass the stress tests — because of the fake account scandal that has plagued the company.

The Fed took issue with how Capital One estimates the potential impact from risks in one of its most material businesses. The Fed did not say which business it was referring to, but it does get the largest share of its sales from its credit card business.

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