The Federal Reserve announced on Thursday that the epidemic restrictions they imposed on banks to limit redemption of shares and dividends will end in mid-2021 for most companies, a victory for the largest US financial institutions.
“The additional” temporary “restrictions on the repurchase of shares of the bank’s holding companies’ shares, which are currently in force, will be lifted after June 30, after the end of the current round of stress tests,” the bank said in a statement on the bank’s ability to withstand severe economic conditions. :
Will banks be able to resume regular payments to help raise their stock prices and reward investors, depending on whether they have capital above their minimum required level? Since December, the amount that banks can pay to shareholders has been limited based on the company’s income over the past year. Prior to December, they were not allowed to buy back shares or increase dividends.
The purpose of FRS was to preserve the capital. Sources of financing that easily turn into cash – to keep banks healthy – to be able to provide loans, even when the US economy has been hit hard by the coronavirus epidemic – և blockades were meant to contain it. Banks remained healthy during the episode, partly due to responses to Fed policies that prevented markets from melting more catastrophically last March.
“The banking system remains a source of strength. After this year’s stress test, we will return to our normal range. That strength will be maintained,” said Rand Quarles, the Fed’s vice president for oversight.
Still, for some, restrictions may remain. According to the Fed, any “bank that falls short of any of its minimum risk-based requirements in the stress test will be subject to additional restrictions for an additional three months until September 30.”
For banks that are still below the requirements after September 30, the Central Bank’s normal minimum capital requirement range “will impose even stricter distribution restrictions,” the statement said.