Fed Extends Dividend, Buyback Cap on Wall Street Banks

(Bloomberg) -- The Federal Reserve has extended through the rest of the year its unprecedented constraints on dividend payments and share buybacks for the biggest U.S. 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 Wednesday. The news is likely to disappoint lenders such as JPMorgan Chase & Co., 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.”

Wall Street banks are moving through a second round of 2020 stress tests that are tailored to the kind of economic damage the U.S. has seen during the coronavirus pandemic. Randal Quarles, the Fed's vice chairman for supervision, has said the exams will influence the agency's decisions on what to do about dividends and buybacks in the first quarter of 2021. He said he hopes the results will let the industry return to “regular order.”

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