Fed to lift bank restrictions on dividends, buybacks by June

Dow falls after Fed bank capital decision

Former investment banker Carol Roth and Kaltbaum Capital Management President Gary Kaltbaum discuss how the markets are reacting to the Federal Reserve’s announcement that banks will no longer get a break on the amount of capital they have to maintain.

In another strong sign the U.S. economy is recovering, the Federal Reserve plans to remove a rule that handcuffed the banks from raising dividends and buying back shares.

The Fed, provided these financial institutions pass the next round of stress tests set for June, will remove the restrictions, as detailed in a statement.

TickerSecurityLastChangeChange %
JPMJPMORGAN CHASE & CO.155.07+2.40+1.57%
BACBANK OF AMERICA CORP.38.72+1.02+2.71%
WFCWELLS FARGO & CO.39.77+0.45+1.14%
GSTHE GOLDMAN SACHS GROUP, INC.327.39-3.16-0.96%
Powered by

Big banks such as JPMorgan, Bank of America, Wells Fargo, and Goldman Sachs, rose during Friday's session.

In what may have been some foreshadowing, U.S. Treasury Secretary Janet Yellen, earlier this week during her testimony with Fed Chairman Jerome Powell, said banks looked healthy and could begin to restore dividends in response to a question.

JANET YELLEN, FED’S JEROME POWELL TESTIFY ON COVID-19 RELIEF, ECONOMY

Stress tests, instituted following the 2008 financial crisis, are aimed at ensuring U.S. financial institutions are well-capitalized in the event of a sharp downturn and able to lend to consumers and small businesses.

This is the second reprieve the Fed has granted the banks. Last week the Fed told banks capital level requirements that were eased during the pandemic would return to normal at the end of this month.

Source: Read Full Article