The Fed's decision was part of the annual checkup it requires banks with more than $50 billion in assets to undergo to ensure they can endure shocks like those that upended the banking system and led to big government bailouts in the 2008 financial crisis. Lenders announced more than $60 billion of dividends and stock buybacks after the Fed approved capital plans for 25 of the 30 banks in its annual exam. In the extreme scenario, the Fed test assumed a rise in the 6.7% unemployment rate to 11.2%, a 50% drop in stock prices and a decline in home prices to 2001 levels (Citi…). Citigroup shares dropped 5.4% Thursday to close at $47.45 a share after the Federal Reserve rejected the plans of Citigroup and four other banks to raise dividend payments and increase stock buybacks. Twenty-five other banks that took part in the "stress test" received a green light for their planned dividend payouts and share repurchases. Citigroup was the biggest recipient of federal bailout money during the crisis, getting $45 billion in cash infusions and many billions more in guarantees. The Fed said its rejection of Citigroup's plans "reflects significantly heightened supervisory expectations for the largest and most complex" bank holding companies. The results show lenders may still face obstacles to boosting dividends and buybacks even as regulators say the firms have doubled their capital since the first public stress test in 2009 (Citi…Boos). The Fed is increasing scrutiny of the industry’s controls and planning processes as concerns about capital levels wane. With each year we have seen broad improvement in the industry's ability to assess its capital needs under stress. However, both the firms and supervisors have more work to do as we continue to raise expectations for the quality of risk management in the nation's largest banks(Citi…).

Works Cited

Citigroup sinks 5% after failing Fed 'stress test'. USA Today. Mar 27th, 2014.
Citigroup Fails Fed Stress Test as BofA Gets Dividend Boost. Bloomberg. Mar 27th, 2014.