Federal Reserve extends share buyback ban on US banks into Q4 2020

The Federal Reserve on Wednesday, September 30, extended a ban on share buybacks by United States banks into the 4th quarter, aiming to ensure they have sufficient capital to weather the coronavirus downturn.

“For the 4th quarter of this year, large banks – those with more than $100 billion in total assets – will be prohibited from making share repurchases,” the central bank said in a statement. 

“Additionally, dividend payments will be capped and tied to a formula based on recent income. The capital positions of large banks have remained strong during the 3rd quarter while such restrictions were in place.”

The announcement comes after the central bank in June ordered 34 major US banks to suspend buybacks in the 3rd quarter and limit dividend payments.

The decision was the first such move since the 2008-2010 global financial crisis and came after the Fed announced the results of its banking system stress tests for the year.

The stress test results varied depending on the severity of the downturn modeled, but Fed Vice Chair Randal Quarles at the time said the outcomes were generally positive.

In its Wednesday announcement, the Fed said it would conduct a 2nd stress test later this year.

The central bank rolled out trillions of dollars in liquidity to stop financial markets from seizing up as the coronavirus forced businesses to close in mid-March, sending unemployment spiking to 14.7% in April, though it since moderated to 8.4% in August. – Rappler.com