Fed to Limit Bank Dividend Payments Due to a High Degree of Economic Uncertainty

The U.S. Federal Reserve announced on Thursday it will require big bank to bar share repurchases and limit dividend payments after the central bank found out that about 34 firms could loss up to $700 billion in a drastic economic downturn caused by the Covid-19 pandemic.

 

The Fed’s annual street test carried out a result that those big banks have struggled to model the unprecedented downturn and ensuing rescue programs, to make sure the lenders remain strong amid the economic uncertainty in the coming months, therefore, big financial institutions shall suspend share buyback in the third quarter, along with the regulations on dividend payment not exceed the amount paid in the second quarter or the quarterly average of net income over the last four quarters.

 

The biggest banks had voluntarily halt a  share repurchases program as Covid-19 has created a harsh impact on economy, but it is unclear how long that would last.

 

“Today’s actions…to preserve the high levels of capital in the US banking system are an acknowledgment of both the strength of our largest banks, as well as the high degree of uncertainty we face,” said Randal Quarles, the Fed’s vice chair, in a statement.