The Federal Reserve has said it will lift restrictions on share buybacks and dividend payments for most US banks after June 30, ending limits introduced in the early months of the pandemic.
The decision – which was unanimously taken by members of the Fed’s board of directors – will apply to banks that pass this year stress tests, in which the central bank assesses the resilience of individual institutions to a new economic shock.
This reflects the Fed’s growing confidence in the US outlook and confidence that the biggest banks have weathered the economic storm unleashed 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,” said Randal Quarles, Fed vice chairman responsible for oversight, on Thursday. in a press release.
The Fed clarified that if a bank stayed “above all of its risk-based minimum 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 Fed’s announcement marks the central bank’s latest move to return its supervision of financial institutions to a more normal level after taking emergency action in 2020 due to the pandemic.
In addition to limiting distributions to shareholders, the Fed had also offered separate capital relief to banks by temporarily changing the “additional leverage ratioTo ease tensions in the US Treasury market. But the Fed said last week that the move would end at the end of March because it weighed in on a more permanent change in the rule.