Fed

Fed to cap bank dividend payments after completing stress test, COVID analysis

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.

Senior

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Fed gets ‘good marks’ on crisis response

Despite grilling Federal Reserve Chairman Jay Powell on the central bank’s corporate bond purchases earlier this week, Sen. Pat Toomey (R-PA) says the Fed gets “good marks” for its response to the economic crisis spurred by the COVID-19 pandemic.

“We need to follow very carefully what the Fed and the Treasury are doing,” Toomey told Yahoo Finance on Thursday. “But I think so far, they have complied with the law and I think so far it looks like it’s been successful.”

On Tuesday, Toomey pressed Powell on the Fed’s efforts to backstop the corporate debt market by purchasing corporate bond ETFs and, as of this week, individual corporate bonds in the secondary market. Responding to the Republican’s concerns that the purchases may “diminish price signals” in the market, Powell said the Fed is trying to ensure that markets continue to function properly.

“I don’t see us as wanting to run

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Fed trying not to ‘run through the bond market like an elephant’

Federal Reserve Chairman Jerome Powell pushed back on concerns over the Fed’s intervention in the corporate bond market, telling Congress on Tuesday that the central bank is prioritizing proper market functioning with its purchases.

“I don’t see us as wanting to run through the bond market like an elephant doing things and snuffing out price signals or anything,” Powell told the Senate Banking Committee. “We want to be there if things turn bad in the economy.”

Since the second week of May, the Fed has been purchasing corporate bond ETFs with “broad exposure” to U.S. investment-grade debt and some high-yield debt from companies that fell below investment-grade after March 22.

On Monday, the Fed announced it would expand the scope of its purchases by creating a “broad, diversified market index” and purchasing individual corporate bonds in the secondary market. Although the Fed had already previously committed to individual corporate bond

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Stock futures extend gains after Fed expands bond-buying program

Stock futures kicked off the overnight session higher Monday evening, extending gains from the regular trading day.

Earlier, stocks closed out a choppy session higher, with equities in the morning tracking toward another session of steep declines before paring losses. The Dow erased earlier losses of as much as 762 points, or 3%, to settle 157 points higher.

The reversal came after the Federal Reserve announced it would begin purchasing individual corporate bonds as part of its emergency lending program to inject liquidity into the virus-stricken economy. The move represented an expansion of the Fed’s previously announced Secondary Market Corporate Credit Facility, which had until Monday only included purchases of exchange-traded funds.

“I think what they’re trying to get away from is the perception that they’re favoring one company or one industry over another so they try to spread it out,” Kathy Jones, chief fixed income strategist at Charles Schwab,

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Fed proposes expanding Main Street loan program to nonprofits

The Federal Reserve is proposing an extension of its emergency loan program to include U.S. nonprofits like universities and charitable organizations. 

On Monday, the Fed released a framework for how it might offer loans as small as $250,000 or as large as $300 million under its Main Street Lending Program. Broadly, the Fed would make eligible any 501(c)(3) or 501(c)(19) organization with between 50 and 15,000 employees, as long as the applicant’s 2019 revenues were less than $5 billion and had less than 30% of those revenues sourced from donations. 

Fed Chairman Jerome Powell said in a statement that the Fed is prioritizing nonprofits because of the “essential services” they provide to communities amidst the COVID-19 crisis.

“Nonprofits provide vital services across the country and we are working to help them through this difficult time,” Powell said.

Nonprofits younger than five years or with an endowment larger than $3 billion

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