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# Fed loosens restrictions on big bank stock buybacks

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Fed loosens restrictions on big bank stock buybacks
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Both dividends and share repurchases, in the aggregate, cannot exceed the average of the firm’s net income for the last four quarters

The Federal Reserve on Friday loosened its ban on share buybacks for the largest banks that were put in place earlier this year to ensure the sector had enough capital to continue to function during the coronavirus pandemic.

The decision follows another round of Fed stress tests that show all banks met capital requirements under two recessionary scenarios.

The Fed kept its cap on bank dividends to income earned over the past year

The Fed said it would buybacks as long as the aggregate amount of the buybacks and dividends don’t exceed the average of net income for the four proceeding quarters.

“If the firm does not earn income, it will not be able to pay a dividend or make repurchases,” the Fed said in a statement.

Taken together, the restrictions prevent a firm from paying out more via buybacks and dividends that it earns.

Fed officials said they didn’t know which of the 34 banks would be allowed to buyback shares until banks disclose their net income for the fourth quarter.

The Fed tested the firms under two different recessionary scenarios. A Fed official said the tests were tough and the results were strong.

Greg Robb

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