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Santander’s Capital Plans Don’t Hold Up to Fed Review

The Federal Reserve has objected to Santander Holdings USA’s capital plans due to widespread deficiencies in governance, internal controls, risk identification and management, as well as other key areas.

by Staff
March 12, 2015
3 min to read


WASHINGTON, D.C. — Santander Holdings USA was one of two banks whose capital plans were objected to by the Federal Reserve in its Comprehensive Capital Analysis and Review (CCAR). Another 28 banks passed the review, including Ally Financial, Capital One, Chase and Wells Fargo.

On Wednesday, the Federal Reserve reported that its Board of Governors objected to the capital plans of Deutsche Bank Trust Corporation and Santander “due to widespread and substantial weaknesses across their capital planning processes.”

“The Board of Governors objected to Santander’s CCAR 2015 capital plan on qualitative grounds because of widespread and critical deficiencies across the BHC [bank holding company]’s capital planning processes,” the report read, in part. “Specific deficiencies were identified in a number of key areas, including governance, internal controls, risk identification and risk management, management information systems (MIS), and assumptions and analysis that support the BHC’s capital planning processes.”

Now in its fifth year, the CCAR evaluates the capital planning processes of the country’s largest bank holding companies in part by conducting stress tests to determine a bank’s common equity capital ratio — which compares high-quality capital to risk-weighted assets. In a news release issued March 5, Santander revealed that it expected its capital ratio to be above minimum requirements under the Federal Reserve’s hypothetical severely adverse economic scenario.

“The companies' internal results under the severely adverse scenario also showed continued resilience through the forecast horizon,” Santander stated in its release. “Using the companies' internal models and processes, Santander Bank's Tier 1 common ratio under the severely adverse scenario would decline from 13.4% at September 30, 2014, to 10.2% at December 31, 2016. The Bank's benchmark capital ratio would therefore remain above the minimum regulatory requirement of 5%.”

The bank did pass the regulator’s stress test in the severely adverse scenario, but opted to make voluntarily adjustments to its planned capital actions.

The Federal Reserve noted in its press release that while it did not object to the capital plan of Bank of America Corporation, it requested that the institution submit a new capital plan by the end of the third quarter to address certain weaknesses in its capital planning processes.

U.S. firms have substantially increased their capital since the first round of stress tests led by the Federal Reserve in 2009, the press release noted. The common equity capital ratio of the 31 bank holding companies in the 2015 CCAR has more than doubled from 5.5% in the first quarter of 2009 to 12.5% in the fourth quarter of 2014, reflecting an increase in common equity capital of more than $641 billion to $1.1 trillion during the same period.

The firms, collectively, are projecting that they will continue building capital from the second quarter of 2015 through the second quarter of 2016. The 31 institutions tested this year represent more than 80% of assets held by domestic bank holding companies, or $14 trillion as of the fourth quarter of 2014.

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