Banking

Fed undecided on bank dividend cap in second quarter

WASHINGTON — The Federal Reserve will consider the pace of coronavirus vaccinations with other factors to decide if a cap on bank dividends and share repurchases will remain in place next quarter, Chair Jerome Powell said Wednesday.

Between June and December, banks could not repurchase shares and had to limit dividends to what they paid out in the second quarter of 2020. Those restrictions were eased starting this month, following midcycle stress tests, with dividends and buybacks capped at an amount based on 2020 income.

But the Fed remains undecided on whether to lift its restrictions entirely for the second quarter of this year, said Powell speaking at a news conference after a meeting of the Federal Open Market Committee.

“We haven’t made a decision about whether to continue them in the second quarter or not,” he said. “We’re going to look at the whole range of information, including economic activity, banking activity, the success in vaccination — all of those things will go into our assessment of what the right answer is to that question.”

“We haven’t made a decision about whether to continue them in the second quarter or not,” Fed Chair Jerome Powell said of restrictions on shareholder payouts. “We’re going to look at the whole range of information, including economic activity, banking activity, the success in vaccination — all of those things will go into our assessment of what the right answer is to that question.”

Bloomberg News

Powell said he has been “pleased” with the central bank’s approach to setting and rolling back restrictions on what banks pay their investors during pandemic.

“Let’s remember that the banks that are subject to the stress tests have taken very, very large loss reserves, and also increased their capital. They actually have higher capital ratios now than they had at the beginning of the pandemic,” he said.

Powell added that so far banks have not experienced “the kinds of defaults that we all were concerned about in the early months of the pandemic.”

“It’s just not materializing, so they’re having to reverse some of their loss reserves, actually,” he said.

Overall, corporate defaults have not occurred to the extent that the Fed was expecting, Powell said, despite a record-high amount of corporate debt that policymakers have long pointed to as a threat to financial stability.

“In a sense, it’s good that companies have been able to finance themselves during this period because they’ve been able to stay in business, they’ve been able to keep their employees working, and that’s a good thing and that’s part of highly accommodative financial conditions,” he said.


Most Related Links :
Business News Governmental News Finance News

Source link

Back to top button