Fed nears decisions on key capital break, shareholder distributions

WASHINGTON — The Federal Reserve is days away from announcing a decision on capital relief that big banks have been pushing for the central bank to extend past the end of March, said Fed Chair Jerome Powell.

The Fed last April announced a one-year easing of the supplementary leverage ratio, a measure of capital strength, for bank holding companies with more than $250 billion of assets. It was followed the next month by similar moves from other agencies for banks under their watch.

The Fed will “have something to announce on that in the coming days,” Powell said on a possible extension of the relief during a Wednesday press conference after a meeting of the Federal Open Market Committee, but he declined to elaborate further.

“We’re gong to continue our data-driven approach” to determining the level of payments banks should be able to make, Fed Chairman Jerome Powell said when asked about banks’ second-quarter dividends and stock buybacks.

Bloomberg News

The supplementary leverage ratio, or SLR, is an extra cushion imposed on the biggest banks, measuring their capital against their entire balance sheets. The temporary steps announced last spring allowed banks to exclude Treasuries and reserves held at the Fed from the SLR calculation, enabling them to expand their balance sheets and help the support the economic during the coronavirus pandemic.

Banks have argued the relief should remain in place as they continue to respond to economic need resulting from the COVID-19 outbreak, but prominent Democrats — including Senate Banking Committee Chair Sherrod Brown — have pushed regulators against prolonging the exemptions, arguing that banks should be conserving capital.

The Fed is also “a couple of weeks away” from announcing a decision on bank dividends and share repurchases for the second quarter of this year, said Powell.

Between June and December, banks could not repurchase shares and had to limit dividends to what they paid out in the second quarter of 2020. Those restrictions were eased in January, with dividends and buybacks capped at amounts tied to average quarterly income in 2020.

Powell had previously said that the Fed would consider the pace of coronavirus vaccinations, along other factors, in deciding whether to lift its restrictions at all.

“We’re gong to continue our data-driven approach” to determining the level of payments banks should be able to make, Powell said. “The December stress test showed that banks are strong and well capitalized. … We’re right in the middle of our 2021 stress tests … and that layers very significant additional stress on top of the stress the banks have already absorbed over the last year.”

The results from the Fed’s 2021 stress test will be released to the public in June, and banks are required to submit their capital plans to the Fed by April 6. This year, at least 19 banks will be evaluated for safety and soundness, though others can copt into the tests before April 5.

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