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)