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The banks, whose capital plans were rejected by the Federal Reserve in March, have been granted an extension to re-submit the revised plans till Jan 5, 2015 (same as the deadline to submit their 2015 capital plans). The prior deadline was Jun 26, 2014.

Of the five banks, only Zions Bancorporation (ZION - Analyst Report) resubmitted its revised capital plan in April. Others – Citigroup Inc. (C - Analyst Report) along with the U.S. units of HSBC Holdings plc (HSBC - Analyst Report), Banco Santander, S.A. (SAN - Snapshot Report) and The Royal Bank of Scotland Group plc (RBS - Snapshot Report) – presently got an extension.

The capital plans of these four banks were rejected by the Fed on on the basis of certain “qualitative” reasons. According to the Fed, these banks had loopholes in their risk management practices under stressful scenario. (Read more: Stress Test Results: 25 Banks Triumph, 5 Disqualify)

The annual stress test and the consequent approval of the capital plans are part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Per the law, the bank holding companies (BHCs) with $50 billion or more in total consolidated assets require the Fed’s approval for their capital plans.

For U.S. banks, capital deployment means higher dividends and increased share repurchase authorization. However, for units of foreign banks it entails higher dividend payments to the parent companies.

The extension of resubmission deadline will afford the banks more time to modify the capital planning weaknesses recognized by the Fed. Although the banks will not be able to increase their capital distributions for this year, they will continue with their current capital deployment plans.

Notably, the news does not come as a surprise for shareholders of Citigroup. As declared previously by the CEO, Michael Corbat, the company does not intend to resubmit its 2014 capital plan. However, it will work to fix the loopholes and prepare the 2015 capital plan.

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