The Federal Reserve is playing with fire on bank capital.
The watchdog is allowing Capital One to buy back $300 million more in stock than was initially permitted under the most recent Dodd-Frank Act stress tests last year. That’s good news for lenders, but it singes the central bank’s reputation for toughness.
The buyback will not put Capital One in danger of being undercapitalized. It represents around 0.11 percentage points of risk-weighted assets, according to Evercore ISI, and the bank passed last year’s stress test with a level of capital reserves more than 3 percentage points above required minimums.
