A firm may not make capital distributions (whether in the form of dividends or capital repurchases) that would, when added to losses under hypothesized adverse scenarios as projected in our annual supervisory stress test, reduce the firm’s capital below certain minimum levels.
When we adopted this rule several years ago, we were criticized by some for encroaching on the prerogative of boards of directors of financial firms to decide on capital distribution policies, in accordance with general corporate governance practice. This criticism has always seemed to me misplaced.