Fed suspends share buybacks and limits dividends for huge banks after stress test results

Kevin Lamarque/Reuters

• The Federal Reserve on Thursday enforced brand-new restrictions on the United States banking system after its yearly tension test showed that some banks might approach minimum capital levels under specific coronavirus pandemic situations.
• Banks will be needed to suspend share repurchases for the third quarter of the year, the central bank said in a statement.
• In addition, the board is also topping dividend payments and requiring large banks to re-submit and upgrade capital strategies later on in the year to show present stresses.
• Read more on Organisation Insider

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The Federal Reserve enforced brand-new constraints on the United States banking system Thursday after its yearly stress test revealed that some banks would approach minimum capital levels under certain coronavirus pandemic circumstances.

” For the third quarter of this year, the Board is requiring large banks to preserve capital by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based upon recent income,” the Federal Reserve stated in a declaration.

In addition, the regulator is also needing banks to re-evaluate their longer-term capital strategies, it said. It’s the first time since the monetary crisis that the Federal Reserve has put new constraints on the US banking system..

” The banking system has been a source of strength throughout this crisis,” Vice Chair Randal K. Quarles stated in statement, including, “the results of our level of sensitivity analyses reveal that our banks can stay strong in the face of even the harshest shocks.”

Read more: A high-growth fund manager is tripling her peers’ returns in 2020 while targeting non-tech markets like beer and dining establishments. She breaks down how she picked out 5 of the most ingenious business.

The Fed stated that all big banks will be needed to re-submit and upgrade capital strategies later on in the year to reflect present stresses. This will assist firms “re-assess their capital requirements and keep strong capital preparation practices during this period of uncertainty,” according to the central bank.

Going forward, the board will carry out additional analysis on a quarterly basis to identify if adjustments to the reaction are suitable.

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