US Major Banks' Dividend Payment Restrictions Likely to Be Lifted in the Second Half of the Year

[Image source= AFP Yonhap News]

[Asia Economy Reporter Park Byung-hee] Major U.S. banks are expected to be able to exercise discretion over cash outflow plans such as share buybacks and dividend payments starting in the second half of this year.

The Wall Street Journal reported on the 25th (local time) that the U.S. central bank, the Federal Reserve (Fed), announced it would lift restrictions on share buybacks and dividend payments currently imposed on commercial banks starting in the second half of this year.

Fed Vice Chair Randall Quarles said on the day, "The banking system is strengthening," and "We expect the stress test results this year to demonstrate a stronger banking system, and if so, we can return to a normal regulatory framework." Quarles is in charge of bank supervision. The Fed stated that the stress test results for this year will be released before July 1.

The Fed has restricted share buybacks and dividend payments by major banks since last summer, citing the need to secure cash in preparation for the economic downturn caused by COVID-19.

The Fed conducted two stress tests on major banks last year. In the test results report released in December last year, the Fed assessed that major banks had sufficient capital soundness to withstand the economic crisis caused by COVID-19. However, it warned that prolonged recession could result in losses of hundreds of billions of dollars due to non-performing loans.

After releasing last year's stress test results, the Fed allowed banks to repurchase shares in the first quarter of this year. However, restrictions on dividend payments were maintained.

On the 25th, Treasury Secretary Janet Yellen also appeared before the Senate Banking Committee and said that banks have secured enough capital soundness to pay dividends to shareholders. Before becoming Treasury Secretary, Yellen emphasized the need to strictly control banks' capital expenditures, but she showed a noticeably changed stance on this day. She said, "Financial institutions now appear to be stronger," and "I believe they should be given some discretion to return profits to shareholders."

This content was produced with the assistance of AI translation services.