Fed extends bar on buybacks and higher dividends by US banks

Regulator cites ongoing economic uncertainty amid coronavirus impact

Federal Reserve chairman Jerome Powell: regulator is extending restrictions on big US banks. Photograph: Caroline Brehman/EPA

Federal Reserve chairman Jerome Powell: regulator is extending restrictions on big US banks. Photograph: Caroline Brehman/EPA

 

The Federal Reserve has extended for the rest of the year its unprecedented constraints on dividend payments and share buybacks for the biggest US banks.

The limits are being continued because of ongoing “economic uncertainty from the coronavirus response” and the need for the banking industry to preserve capital, the Fed said in a statement late on Wednesday. The news is likely to disappoint lenders such as JPMorgan Chase, which had already indicated interest in resuming buybacks.

The caps announced in June have restricted banks from increasing dividends above second-quarter levels, and buybacks were banned. Those restrictions were less than the total elimination of dividends demanded by some Democratic lawmakers.

Fed governor Lael Brainard dissented in the 4-1 vote to extend the existing limits, having previously argued that allowing capital distributions “creates a significant risk that banks will need to raise capital or curtail credit at a challenging time”. – Bloomberg