WASHINGTON—The Federal Reserve continues to take steps aimed at safeguarding the financial strength of the nation’s banks during the economic downturn, by again restricting shareholder payouts and capping dividend payments during the third quarter.
The actions follow the release of 2020 stress test results and additional sensitivity analyses amid the struggling economy. After markets closed last evening, the nation’s largest banks also published their capital plans in response to last week’s stress tests.
Specifically, actions taken by the Fed include:
- Requiring large banks to preserve capital by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based on recent income for the third quarter
- Requiring banks to re-evaluate their longer-term capital plans
- Resubmitting and reupdating large banks' capital plans later this year
- Conducting additional analysis by the Fed each quarter to determine if adjustments to capital plans are appropriate
‘Assessing Conditions’
Fed Vice Chair for Supervision Randal Quarles noted that while the banking system remains well capitalized, the agency is assessing conditions more intensively and requiring banks to adopt prudent measures to preserve capital amid the uncertainty of economic recovery.
Fed Governor Lael Brainard cautioned against weakening banks' capital buffers, arguing "strong capital buffers associated with Dodd-Frank reforms have enabled banks to play a constructive role in responding to the COVID-19 pandemic."