At the US equity market close, the Fed objected to the capital plans of Citigroup, HSBC, RBS, Santander based on qualitative concerns. Zions Bancorp failed based on quantitative concerns but this was expected and they will be resubmitting. Goldman and BofA only passed after reducing their requested buyback and dividend plans, as both say their Tier 1 leverage ratios drop below 3.9% in their original plans, below the required 4%.

Citigroup’s plan was objected to because “heightened supervisory expectations for the largest and most complex [bank
holding companies] in all aspects of capital planning,” Federal Reserve said in its annual Comprehensive Capital Analysis and Review released today… its 2014 capital plan reflected a number of deficiencies in its capital planning practices, including in some areas that had been previously identified by supervisors as requiring attention, but for which there was not sufficient improvement. Practices with specific deficiencies included Citigroup’s ability to project revenue and losses under a stressful scenario for material parts of the firm’s global operations, and its ability to develop scenarios for its internal stress testing that adequately reflect and stress its full range of business activities and exposures. Taken in isolation, each of the deficiencies would not have been deemed critical enough to warrant an objection, but, when viewed together, they raise sufficient concerns regarding the overall reliability of Citigroup’s capital planning process to warrant an objection to the capital plan and require a resubmission.”

With regard to HSBC, the Federal Reserve found specific deficiencies in HSBC’s practices for estimating revenue and losses for material aspects of its operations under a stress scenario.

The Federal Reserve objected to the capital plan from Santander due to widespread and significant deficiencies across the BHC’s capital planning processes. Specific deficiencies were identified in several areas, including governance, internal controls, risk identification and risk- management, management information system (MIS), and assumptions and analysis that support the BHC’s capital planning processes.

With regard to HSBC, RBS Citizens, and Santander, the identified deficiencies in their capital planning processes are sufficiently material to call into question the overall reliability of their capital planning processes and raise concerns that warrant an objection and require resubmission of the capital plan.

I’m not an expert in banking regulations, but it seems hard to handicap the meaning of qualitative concerns. The text reads like the Fed is trying to send a message to the banks. The NYFRB has recently also been publishing a series of papers on the downside risks of too-big-to-fail banks. When read in conjunction with the comments from Fed governor Stein, it seems like the Fed is taking some early steps to slow the building of leverage in the banking system and keep the banks on their toes. The most immediate effect seems to be limited to a delay in the banks’ plans to return capital to shareholders.


  • Germany GfK Consumer Confidence was stable at 8.5% as exp
  • Italy Consumer Confidence jumped to 101.7 vs 98.4 exp and 97.5 prev
  • US Durable Goods Orders headline rose 2.2%, driven by aircraft. The Core measure improved just 0.5% vs 0.8% exp, while the previous print was revised to -1.4% from -0.8%.
  • Markit US Services PMI improved to 55.5 vs 54 exp and 53.3 prev
  • The 5y Treasury auction was very strong today. The 25.9% dealer takedown is the smallest print since the Treasury first began releasing the data in May 2003!!
  • Hundreds of depositors have raced to pull their cash from a small rural bank in eastern China, forcing local officials to take emergency measures to calm the panic after the bank run began to spread. – FT
  • RBA governor Stevens stuck to the “hurdle to changes in policy rates remain high” and that the Aussie dollar “direction from here depends on view of fundamentals.” The currency broke out firmly above the 200 day moving average, as the market expected Stevens to try to talk down the currency. Quotes form Stevens:
  1. “This outlook is, obviously, a balance between the large negative force of declining mining investment and, working the other way, the likely pick up in some other areas of demand helped by very low interest rates,”
  2. “The lower exchange rate since last April and the improved economic conditions overseas also help.”
  3. “We are watching this closely, and we remind people that house prices can go down as well as up.”

Upcoming Data:

  • Wed: NZ Trade Balance
  • Thu: Italy Business Confidence, EU Money Supply, UK Retail Sales, US Jobless Claims, Pending Home Sales, Japan Unemployment, CPI, Retail Sales, UK Consumer Confidence
  • Fri: New ZealandBuilding Permits, Japan PMI, Housing Starts
  • Mon: Month End, EU CPI, Canada GDP, Chicago Fed, AU PMI, China PMI, China HSBC PMI
  • Tue: Japanese VAT hike hits, UK PMI, Italy PMI, US ISM, Australia Building Approvals
  • Wed: UK House Prices, EU PPI, US ADP, Australia Retail Sales, Trade Balance, China PMI