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WASHINGTON, June 25 (Reuters) - The U.S. Federal Reserve
announced on Thursday it will cap big bank dividend payments and
bar share repurchases until at least the fourth quarter after
testing bank finances against a potential severe economic slump
from the coronavirus pandemic.
In its analysis, the Fed found that the country's largest
lenders have struggled to model the unprecedented downturn and
ensuing rescue programs, adding to already unprecedented
uncertainty about how banks and the economy overall would
perform in the coming months.
The Fed did not say how each bank fared under the pandemic
analysis, but found the 34 tested firms could suffer as much as
$700 billion in loan losses under the most severe "W-shaped"
pandemic recovery.
The findings, added to the Fed's annual stress test of the
nation's biggest banks including JPMorgan Chase & Co and
Goldman Sachs Group Inc, showed that banks could weather
a severe, tumultuous and prolonged economic downturn, but
several firms would cut close to their minimum capital
requirements.
With that in mind, the Fed announced it was setting a cap on
how much firms could pay to investors in dividends in the third
quarter. Banks cannot pay more than they did in the second
quarter, and their maximum cannot be more than each firm's
average net income over the last four quarters.
The Fed also said it was barring share repurchases for the
banks for at least the third quarter - a move the nation's
largest lenders had already voluntarily taken for the second
quarter as the pandemic took hold.
(Reporting by Pete Schroeder in Washington and David Henry in
New York
Editing by Lauren Tara LaCapra and Matthew Lewis)
