The Federal Reserve will subject more banks to annual stress tests to determine whether they have enough capital and can raise their dividends. On Friday, the Fed said it is proposing that banks with $50 billion or more in assets be subjected to the capital testing regime, bringing the number of banks that would face annual tests to 35 from its prior level of 19.
The tests seek to determine how a large bank whose failure could hurt the economy and markets would weather a financial shock or an economic downturn. "Institutions would be expected to have credible plans to have sufficient capital so that they can continue to lend to households and businesses, even under adverse conditions," the Fed said in a release.
Bank stocks, already under pressure, fell almost 2 percent midday trading on Friday, as measured by the KBW Bank Index of large-cap financials. Some of the biggest decliners were regional bank stocks that are now going to face annual tests. The rule is expected to be finalised later this year and the new round of reviews are planned for early 2012.