Ally Financial believes that the
Federal Reserve's analysis of Ally's capital adequacy for the Dodd-Frank Act
Stress Test (DFAST) is fundamentally flawed and, while the Fed has not
provided details, the analysis is inconsistent with historical experience in
the most stressed periods in our business.
While Ally appreciates the Fed's role in ensuring that financial institutions
have adequate capital during stressed situations, using flawed assumptions
could have lasting adverse impacts on the economy, including ultimately
causing banks to reduce certain key lending categories. For example, Ally
believes the loss rates assumed for the automotive finance business are
implausible, even in dire economic situations. The auto finance sector, in
fact, has historically been one of the best performing asset classes during
economic downturns.
Regardless of the DFAST results, Ally continues to have strong capital levels
and ample liquidity to support its automotive finance operations. In
addition, Ally Bank continues to be a well-capitalized bank with a leading
position in the market.
Moreover, if the Fed has significant concerns about Ally's capital adequacy,
it can immediately initiate a conversion of approximately $5.9 billion of
existing capital that can be fully converted into Tier 1 common equity at
their discretion.
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