The Federal Reserve will bar big banks from increasing their dividend payments, following the central bank’s annual stress tests that included a “sensitivity” analysis incorporating the impact of the COVID-19 crisis.
The Fed on Thursday afternoon described 33 of the nation’s largest banks as a “source of strength,” noting that all the banks appear strongly capitalized to deal with a harsh economic downturn.
But the central bank said it would impose dividend caps and a restriction on share buybacks in the third quarter of this year to “ensure large banks remain resilient despite the economic uncertainty from the coronavirus event.”
Dividends will be capped at either the amount paid in the previous quarter or the quarterly average of income made over the last four quarters, whichever is less. On buybacks, the nation’s eight largest banks had previously committed to suspending share buybacks for the first and second quarters.