The Federal Reserve has announced plans to allow most banks to resume dividend payouts and stock buybacks after 30 June.
The move is a reversal of temporary strictures imposed last year to save capital during the Covid-induced slump.
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The US central bank banned banks from buying back their own shares, and capped dividends so that they would not exceed a bank’s recent profits.
The loosening of the rules will come after the completion of annual stress tests to determine their resilience to a hypothetical downturn.
Banks with capital levels above those required by the stress tests will no longer be subject to the additional restrictions as of that date. The Fed said that banks with capital levels below those required by the stress tests will remain subject to the restrictions.
Payouts are now linked to profit
The central bank has repeatedly extended the restrictions on dividends while it allowed buybacks to resume in the first quarter of 2021.
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By GlobalDataHowever, banks still can’t return to shareholders more than they have been making in profit over the past year. And the aggregate dividends and repurchases can’t exceed the average quarterly profit from the four most recent quarters.
Before the Fed imposed its payout restrictions last summer, the biggest US banks, including Bank of America and JPMorgan, had voluntarily halted share buybacks through the second quarter of 2020.
Buybacks are the main way US banks return capital to shareholders.
“Financial institutions look healthier now,” Janet Yellen
Some officials such as Janet Yellen, who pressed for tougher restrictions on bank payouts before she became Treasury secretary, have said banks are now in a strong enough position to distribute dividends to shareholders and buy back stock.
“Financial institutions look healthier now, and I believe they should have some of the liberty provided by the rules to make returns to shareholders,” Ms. Yellen said in Senate testimony this week.
