MetLife Inc , the largest U.S. life insurer, said the Federal Reserve did not approve its planned dividend increase and stock repurchases as it requires the company's capital actions be tested under a revised stress scenario.

Though MetLife is predominantly an insurer, its MetLife Bank unit also makes it a bank-holding company, giving the Federal Reserve regulatory authority over its capital plans.

The company had said it might sell its banking business to avoid regulatory issues that might arise from being tagged as too big to fail.

We continue to move forward on our plans to explore the sale of the depository business and the mortgage origination activity conducted at MetLife Bank and to take the necessary steps to no longer be a bank holding company, Chief Executive Steven Kandarian said in a statement.

The company said it plans to participate in the Federal Reserve 2012 Comprehensive Capital Analysis and Review and hopes to gain approval for its capital plans early next year.

Shares of the New York-based insurer were down 5 percent in trading after the bell. They closed at $32.83 on Tuesday on the New York Stock Exchange.

(Reporting by Jochelle Mendonca in Bangalore; Editing by Sriraj Kalluvila)