Fed to increase curbs on huge financial institution buybacks, dividends by way of finish of 12 months
A man wearing a mask walks past the U.S. Federal Reserve building in Washington D.C., the United States, on April 29, 2020.
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The U.S. Federal Reserve will curb big bank capital distributions through the end of the year, meaning the likes of JPMorgan Chase, Citigroup, Wells Fargo and Bank of America will be barred from share buybacks and will have to cap dividends.
The central bank announced it would extend its existing policy of limiting capital payouts for banks with at least $100 billion in assets, to ensure lenders have enough capital to weather the economic strain caused by the coronavirus pandemic.
The restrictions, which apply to 34 banks, including the U.S. operations of several large foreign firms, were extended “due to the continued economic uncertainty from the coronavirus response,” the Fed said.
The Fed announced in June it was taking the unprecedented step of limiting bank payouts after finding lenders faced significant capital losses under a pandemic-informed stress test. Under the new policy, banks cannot pay higher dividends than they did in the second quarter, and payments cannot exceed a firm’s average net income over the last four quarters.
Large banks will face a second pandemic Fed stress test later this year, with results to be announced by the end of 2020. The Fed found in its original stress test that lenders could endure as much as $700 billion in loan losses under a severe economic downturn caused by the outbreak.
Banks were expected to stay afloat amid those losses, but several skirted close to violating minimum capital levels required by regulators, the Fed said at the time.