Fed rejects Deutsche Bank and Santander's capital plans, orders BoA strategy review

According to the Fed, both Deutsche Bank and Santander's plans contain "widespread and critical deficiencies" in calculating and dealing the risks linked with a financial meltdown, adding that banks can only distribute capital once new plans are "expressly permitted" by the Fed.

"Our capital plan review helps ensure that the capital distribution plans of large banks will not compromise their ability to continue lending to businesses and households even during a period of serious financial stress," said Federal Reserve Gov. Daniel K. Tarullo.

On Wednesday, the Fed approved capital plans for the other 29 banks evaluated in the second part of its annual stress test but said Bank of America's approval is subject on the lender submitting a revised strategy by the 30 September.

The Fed said Bank of America's plans contained "weaknesses in certain aspects of Bank of America's loss and revenue modeling practices and in some aspects of the (bank holding company's) internal controls."

Implemented in the wake of the 2008 financial crisis, stress test are pivotal in gauging ability to sustain risk and a potential economic crisis and, last week, the Fed said that 31 banks among those assessed were well equipped to cope with a financial crisis.

"While [bank holding companies] have better practices in place today than they did before the crisis, many continue to have challenges in fully meeting supervisory expectations for capital planning," the Fed said in a statement.