- The Federal Reserve put new restrictions on the U.S. banking industry Thursday after its annual stress test found that several banks could get uncomfortably close to minimum capital levels in scenarios tied to the coronavirus pandemic.
- The Fed said in a release that big banks will be required to suspend share buybacks and cap dividend payments at their current level for the third quarter of this year. The regulator also said that it would only allow dividends to be paid based on a formula tied to a bank’s recent earnings.
- Furthermore, the industry will be subject to ongoing scrutiny: For the first time in the decade-long history of the stress test, banks will have to resubmit their payout plans again later this year.
- Under the harsher scenarios, banks could rack up as much as $700 billion in loan losses as unemployment hits 19.5%, a development that would push some banks close to their regulatory minimums for capital.
WASHINGTON – For the first time since the aftermath of the global financial crisis, the Federal Reserve is putting new restrictions on how the country’s biggest banks spend capital with an eye toward protecting the financial system from risks to the economy posed by coronavirus pandemic.
The Federal Reserve ordered the country’s 34 biggest banks, including JPMorgan Chase, Wells Fargo and Bank of America, to suspend their stock buyback programs and to limit dividend payments to shareholders. The banks must also submit new plans for maintaining enough of the they capital needed to survive a downturn.
Cash-starved cities and states across the country are starting to weigh whether to raise taxes on homes, cigarettes, local businesses and global tech giants, hoping to rake in new revenue that might help them close the massive budget shortfalls created by the coronavirus pandemic.
The increases that have been proposed – and in some cases adopted – reflect the growing desperation on the part of government leaders nationwide. Many have found that recent spending cuts, furloughs and layoffs haven’t been enough to shore up their sagging finances, forcing them to consider more politically noxious and economically risky moves in the middle of an economic crisis.
“No politician wants to lead with raising taxes,” said Mark Mazur, the director of the Urban-Brookings Tax Policy Center. “When they get there, it’s because they’ve run out of other options.”