Fed lifts curbs on US banks’ share buybacks and dividends

The Federal Reserve said that it would lift restrictions on share buybacks and dividend payments for most US banks after June 30, putting an end to limits it introduced in the early months of the pandemic.

The decision — which was made unanimously by members of the Fed board — will apply to banks that pass this year’s stress tests, in which the central bank gauges the resilience of individual institutions to a new economic shock.

It reflects growing confidence at the Fed about the US outlook and confidence that the biggest banks have weathered the economic storm triggered by the pandemic.

“The banking system continues to be a source of strength, and returning to our normal framework after this year’s stress test will preserve that strength,” Randal Quarles, the Fed’s vice-chair for supervision, said in a statement on Thursday.

The Fed specified that if a bank remained “above all of its minimum risk-based capital requirements in this year’s stress test”, the restrictions would end after June 30. If it fell below that level the limits would remain in place for another three months.

The announcement by the Fed marks the latest move by the central bank to return its supervision of financial institutions to a more normal footing after taking some emergency steps in 2020 due to the pandemic.

As well as limiting shareholder distributions, the Fed had also offered separate capital relief to banks through a temporary change in the “supplementary leverage ratio” to ease strains in the US Treasury market. But the Fed last week said that measure would end at the end of March, as it weighed a more permanent change to the rule.