The US Federal Reserve on Friday announced that it will extend restrictions on major US banks until the end of the first quarter of 2021 to protect the financial system against the risks posed by the Covid 19 epidemic.
“In view of the current economic uncertainty, the Council is expanding its current restrictions on the distribution of capital to protect the integrity of the banking sector.”, The central bank said in a statement, while these restrictions have been modified. In June, it banned large banks, including JPMorgan, Wells Fargo and Bank of America, from undertaking third-quarter share repurchase plans. It also ordered limiting dividend payments to shareholders. The move was extended until the end of 2020. “In the first quarter of 2021, dividends and share withdrawals will be limited to one sum based on last year’s earnings.”, He says this Friday. “If a company does not earn income, it will not be able to pay dividends or make share purchases.”, She adds.
The decision comes after the results of new stress tests at 33 major banks. These financial stress tests were put in place by the Dot-Frank Act after the 2008 financial crisis. But the epidemic of spring plunged the US economy into recession and the central bank deserved a second round of testing.
These new experiments involve two scenarios. The first visual unemployment rate was 12.5%, which dropped to about 7.5%, while in the second scenario the maximum unemployment rate was 11% and then 9%. In both cases, the big banks will collectively accumulate more than $ 600 billion in losses, much higher than those established in the first 2020 stress tests. However, the capital ratios will be higher than the minimum required in both cases. .
Test results released this Friday “Ensure that large banks continue to lend to homes and businesses in the face of a severe economic downturn”, Commented Randall Quares, the federal vice president in charge of overseeing the tests. The central bank hopes the extension of restrictions will help protect bank capital and ensure that banks can lend to homes and businesses. “Board to assess recession of major banks and monitor economic conditions”, Adds powerful financial institution.