Federal Reserve extends US bank share buyback ban through March 2021

The Federal Reserve on Friday announced it was extending restrictions on major US banks through the end of the first quarter of 2021 to protect the financial system during the COVID-19 pandemic.

“In light of the ongoing economic uncertainty and to preserve the strength of the banking sector, the Board is extending the current restrictions on distributions,” the Fed said in a statement.

The central bank earlier this year ordered 34 major US banks to suspend share buybacks in the last two quarters of the year and limit dividend payments.

The central bank however slightly modified its regulations, saying for the January-March period of next year, “both dividends and share repurchases will be limited to an amount based on income over the past year” and firms not earning income won’t be able to pay dividends or make share repurchases.

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The Fed also announced results of its second banking stress test of 2020, which found that banks “generally had strong levels of capital” even as they faced an uncertain outlook.

“The banking system has been a source of strength during the past year and today’s stress test results confirm that large banks could continue to lend to households and businesses even during a sharply adverse future turn in the economy,” Fed Vice Chair for Supervision Randal K. Quarles said.

The Fed normally conducts one stress test a year, but added a second in 2020 given the unique circumstances of the pandemic and the United States’ entry into a recession.