FED Issues Update on Bank Dividend and Share Repurchase Restrictions
FED announced that the temporary and additional restrictions that are in place on bank holding company dividends and share repurchases will end for most firms after June 30, 2021 after completion of the current round of stress tests. Firms with capital levels above those required by the stress test will no longer be subject to the additional restrictions as of that date. However, firms with capital levels below those required by the stress test will remain subject to the restrictions. Results for this year's test will be released by July 01, 2021.
After two rounds of stress tests last year, FED found that large banks had strong capital levels, which provide a cushion against losses. However, due to economic uncertainty from the COVID event, FED put temporary and additional restrictions on capital distributions. Those restrictions limit bank dividends and share repurchases to an amount based on income over the past year. Normally, a large bank's capital distributions are restricted principally by FED's stress capital buffer, or SCB, framework. The SCB sets a capital target for each bank based on its individual stress test results, requiring the bank to hold at least enough capital to survive a severe recession. If a firm does not meet that target, automatic restrictions are imposed.
If a bank remains above all of its minimum risk-based capital requirements in this year's stress test, the additional restrictions will end after June 30, 2021 and it will be subject to the SCB's normal restrictions. However, a bank that falls below any of its minimum risk-based requirements in the stress test will remain subject to the additional restrictions for three extra months, through September 30, 2021. If the firm remains below the capital required by the stress test at that time, the framework of the regular SCB regime will impose even stricter distribution limitations. For a bank that is not subject to the stress test this year and on a two-year cycle, the additional restrictions will end after June 30, 2021 and its SCB requirements based on the June 2020 stress test will remain in place. Overall, the FED stress tests help ensure that large banks can support the economy during economic downturns. The tests evaluate the resilience of large banks by estimating their losses, revenue and capital levels under hypothetical scenarios over nine future quarters.
Related Link: Press Release
Keywords: Americas, US, Banking, Stress Testing, COVID-19, Dividend Distribution, Regulatory Capital, Basel, SCB, Stress Capital Buffer, Share Buybacks, FED
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
FCA Issues Update on Tailored Support Guidance Amid Ongoing CrisisRelated Articles
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
ISSB Standards May Become Effective from January 2024
The International Organization of Securities Commissions (IOSCO) welcomed the confirmation statement by the International Sustainability Standards Board (ISSB) setting out its progress in the development of its first sustainability-related corporate disclosure standards.
