The Federal Reserve on Thursday said it will lift COVID-era dividend and share buyback restrictions on the largest banks, potentially setting up big bank shareholders for a windfall of capital distributions.
The regulator announced results from its annual stress test on Thursday, declaring that all 23 of the tested banks appeared to have “strong capital levels” and would be able to withstand a severe recession.
The Fed had been imposing additional restrictions on the amount that large banks could pay out to shareholders in dividends and share repurchases. But it said in March that those restrictions would be lifted if banks met regulatory minimums in their stress tests.
By showing the Fed that they were capitalized above the regulator's requirements, the largest banks — which include the likes of JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC), and Wells Fargo (WFC) — will no longer. face restrictions on share buybacks and dividends after June 30.
Federal Reserve Vice Chairman for Supervision Randal Quarles said in a statement Thursday that the banking system looks “strongly positioned to support the ongoing recovery.”
The largest banks may immediately boost their planned dividends and share buybacks as a result of the Fed results.
Mike Mayo, a senior analyst at Wells Fargo, had said before the results that he expected all the tested banks to clear the test.
“We think banks will be allowed to return twice as much capital this year as opposed to the prior year,” Mayo told Yahoo Finance on Monday, projecting that large-cap banks could pay out $127 billion in capital this year (compared to $63 billion. in 2020).