June 29, 2020

Fed restricts banks' payouts as stress tests reveal vulnerabilities

Federal ReserveThe Federal Reserve last week moved to ensure banks remain strong enough to maintain lending throughout the coronavirus pandemic by restricting shareholder payouts and capping dividend payments. The actions follow the release of 2020 stress test results and additional sensitivity analyses amid the national emergency.

The Fed's actions include:


    requiring large banks to preserve capital by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based on recent income for the third quarter;
  • requiring banks to re-evaluate their longer-term capital plans;
  • resubmitting and reupdating large banks' capital plans later this year to reflect current stresses, which will help institutions reassess their capital needs and maintain strong capital planning practices during this period of uncertainty; and
  • conducting additional analysis by the Fed each quarter to determine if adjustments to capital plans are appropriate.

Fed Vice Chair for Supervision Randal Quarles noted that while the banking system remains well capitalized, the agency is assessing conditions more intensively and requiring banks to adopt prudent measures to preserve capital amid the uncertainty of economic recovery.

Fed Governor Lael Brainard cautioned against weakening banks' capital buffers, as "strong capital buffers associated with Dodd-Frank reforms have enabled banks to play a constructive role in responding to the COVID-19 pandemic."

NAFCU will continue to monitor economic conditions amid the coronavirus pandemic to ensure credit unions and their members remain financially stable. See more of the association's economic analyses here.