Deutsche Bank and Santander fail US Federal Reserve's annual stress test
Deutsche Bank Trust Corporation and Santander Holdings USA will not be allowed to distribute capital to their parent companies Reuters

The US businesses of Deutsche Bank and Banco Santander have failed to pass the US Federal Reserve's annual stress test, according to the American central bank. The two-part stress test which was adopted post the 2008 financial crisis is conducted annually. It checks the ability of banks based in the US to adequately respond to an economic crisis or a market crash. According to a Fed press release, 33 banks which included Ally Financial, American Express, BancWest, Bank of America, BMO Financial and BB&T, were put through the test.

While all 33 of them passed the first part of the stress test, the second part, known as the Comprehensive Capital Analysis and Review (CCAR) saw all banks, except Deutsche Bank Trust Corporation and Santander Holdings USA, make the cut.

Bill Woodley, deputy CEO at Deutsche Bank Americas, reportedly said: "The capital adequacy of Deutsche Bank Trust Corporation has never been in doubt. We appreciate the Federal Reserve's recognition of our progress, and we will implement the lessons learned this year in order to strengthen our capital planning process for future CCAR submissions."

Scott Powell, CEO of Santander Holdings USA, was quoted as saying, "We are financially sound. These results do not affect our ability to serve our customers."

While this marks the third time that Santander's US business has failed the test, it is the second consecutive failure for the US arm of Deutsche Bank. While the former owns a 59% stake in a Texas-based vehicle finance and unsecured consumer lending firm, the latter represents about 15% of Deutsche's US assets. Failing the CCAR now means both the banks will not be allowed to distribute capital to their parent companies.

The news comes just days after rating agency Moody's lowered the outlook of some UK banks. Among others, Santander UK was downgraded to negative from stable.

Among other banks, news reports said Morgan Stanley passed the test but received some criticism. The central bank said it found "weaknesses" in the American financial firm's internal risk-management processes because of which it was asked to resubmit a new capital plan by the end of 2016. However, Morgan Stanley was told it will still be able to return capital until then.