Politics & MoneyMortgage

Fed rejects capital plans of Ally Financial, BB&T Corp.

The Federal Reserve rejected capital plans submitted for review by Ally Financial Inc. and BB&T Corp. on Thursday.

The banks plans were shot down after the Fed finalized its review of the firms’ capital planning processes and reserves.

At the same time, the Fed accepted the capital plans of 14 banks and provisionally accepted plans from Goldman Sachs (GS) and JPMorgan Chase (JPM), while requiring the two banks to revise their existing plans and re-submit them by the end of the third quarter to address underlying weaknesses.

Ally Financial, a bank that focuses primarily on auto lending after distancing itself from mortgages, objected to the Fed’s decision and asked for more transparency in the capital review and analysis process. 

“Ally Financial continues to disagree with the Federal Reserve’s analysis of Ally’s capital adequacy in a stressed scenario,” the bank said in a statement. “Ally seeks additional transparency into the Federal Reserve’s assumptions and modeled results.”

The bank objected to the results, saying the Fed assumes loss rates for Ally’s commercial and industrial loans in a manner that is “more than seven times the losses experienced during the peak of the last recession.”

It’s also three times the loss rate assumptions used in the Fed’s capital plan analysis a year earlier, Ally claims.

“Regardless of the CCAR results, Ally continues to have strong capital levels and ample liquidity to support its automotive finance operations,” the bank concluded in a statement. 

BB&T also defended its capital strength saying, “based on the quantitative results of the stress test, BB&T does not believe these objections are related to the company’s capital strength, earnings power or financial condition.”

The Federal Reserve evaluated all of the banks capital plans to ensure the institutions can lend to households and businesses while simultaneously meeting other financial obligations.

The Fed accepted capital plans submitted by the following firms: American Express Co. (AXP); Bank of America (BAC); The Bank of New York Mellon Corporation (BK); Capital One Financial Corporation (COF); Citigroup, Inc. (C); Fifth Third Bancorp (FITB); KeyCorp (KEY); Morgan Stanley; The PNC Financial Services Group, Inc. (PNC); Regions Financial Corporation ; SunTrust Banks, Inc. (STI); U.S. Bancorp (USB); and Wells Fargo & Company (WFC).

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