Federal Reserve extends ban on big bank dividends, buybacks

The US Federal Reserve is extending until the end of the year its restrictions on large banks and financial services companies paying out dividends and buying back stock.

The Fed made the announcement on Wednesday aimed at bolstering US banks as the coronavirus pandemic has causes millions of Americans to fall behind on mortgages, credit card payments and auto loans.

All banks with more than $US100 billion ($139.7 billion) in assets will still to be able to pay dividends, but they will remain capped at their levels before the original restrictions went into place in June, the Fed said. Stock buybacks will remain restricted until the end of the year.

Fed chairman Jerome Powell during a virtual news conference. The US central bank has extended its restrictions on bank dividends.Credit:Bloomberg

The central bank enacted the original restrictions in June, as part of its annual stress tests for the nation's 33 largest banks. The Fed said that the risk of a double-dip recession was too great, and would put too much stress on banks' balance sheets, causing many of them to fall below critical capital levels.

The restrictions were due to end Wednesday, with the end of the September quarter.

While the US economy is recovering from its pandemic shutdown earlier in the year, unemployment remains high and millions of Americans remain out of work. Millions of homeowners are in forbearance programs on their mortgages, or have asked for relief from payments on credit cards or car loans.

These loans would typically be considered deeply distressed or been written off in a normal economic environment.

The Fed's measures are designed to keep big bank capital levels at a high level, fortifying them if the coronavirus pandemic were to flare up yet again and require additional public health shutdowns.


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