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Fed May Curb Banks’ Dividends Due to Virus Crisis, Quarles Says

May 12, 2020, 6:54 PM

The Federal Reserve could curtail Wall Street banks’ ability to pay dividends by cranking up the amount of capital they need to maintain due to the coronavirus crisis, Governor Randal Quarles said Tuesday.

Quarles, the Fed’s vice chairman for supervision, said the central bank is adding a current-events analysis to its annual stress-testing process that could influence lenders’ ability to distribute capital. The impact of the economic meltdown caused by the global pandemic could shift the stress capital buffer that determines capital demands at the banks and how much they can return to shareholders, he told Senate Banking Committee members at a hearing held by video conference.

“We are doing the analysis,” Quarles said. “And that will determine the ability of any of the banks to conserve capital.”

While Quarles offered more detail than the Fed had provided previously, he didn’t get into specifics about how much the additional analysis would affect the annual calculation of each bank’s capital buffer. He also said the stress tests could be concluded well before the June 30 deadline.

“We’re open-minded as to what the data will show,” said Quarles, who noted that the industry’s capital levels have made banks a source of strength during the crisis. He said he’s unaware of any institutions in danger of insolvency.

While the biggest banks have already agreed to suspend stock buybacks, Democratic lawmakers and consumer advocates have pushed for them to also suspend dividends and use their capital to help absorb the financial stresses of the crisis.

To contact the reporter on this story:
Jesse Hamilton in Washington at jhamilton33@bloomberg.net

To contact the editors responsible for this story:
Jesse Westbrook at jwestbrook1@bloomberg.net

Gregory Mott

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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