New York (CNN Business)The Federal Reserve will end its restrictions on bank dividends and buybacks for most institutions on June 30 as long as they pass the current round of stress tests, the central bank announced Thursday.
Yellen and Powell praise stimulus but warn that more needs to be doneLast June, Wall Street’s biggest banks were required to suspend share buybacks in the third quarter and to cap shareholder dividends to the amount paid in the second quarter as a Covid-19 precautionary measure. Restrictions were put in place to shore up capital and to ensure that financial institutions remained strong enough to lend to those affected by the coronavirus pandemic. “The banking system continues to be a source of strength and returning to our normal framework after this year’s stress test will preserve that strength,” said Randal Quarles, the Fed’s vice chairman of supervision.Restrictions will only be lifted for banks that pass the central bank’s annual stress test and remain above minimum capital requirements. Otherwise, restrictions will continue through September 30. Banks that still don’t meet the requirements will be imposed with stricter distribution limits, the Fed indicated. Stress tests “evaluate the resilience of large banks by estimating their losses, revenue and capital levels under hypothetical scenarios over nine future quarters,” according to the Fed’s announcement. Read MoreThe Fed said results of this year’s test will be released on July 1.Earlier this week, Treasury Secretary Janet Yellen signaled her support for lifting restrictions on banks.”I have been opposed earlier when we were very concerned about the situation the banks would face about stock buybacks,” Yellen said in a Senate testimony on Wednesday. “But financial institutions look healthier now, and I believe they should have some ability to abiding by the rules to make returns to shareholders.”