The Fed limits large bank dividends and bans third-quarter share buybacks (NYSE: ALLY)

The Fed tells banks to keep third-quarter dividends at second-quarter levels and prohibits them from buying back shares in the third quarter to preserve capital.

It also requires banks to reevaluate their long-term capital plans.

“All major banks will need to resubmit and update their capital plans later this year to reflect current tensions, which will help companies reevaluate their capital needs and maintain sound capital planning practices during this period of uncertainty, “the Fed said in its report. statement.

The board will conduct additional analyzes each quarter to determine if adjustments to this response are appropriate.

Looking at the real stress tests, the results show that “all the big banks are still heavily capitalized,” the Fed said.

Nor will it object to five foreign banks whose capital planning practices were evaluated as part of the stress tests.

Fed Governor Lael Brainard is opposed to allowing banks to continue paying dividends thanks to the change in financial conditions caused by the COVID-19 pandemic.

“I do not support giving the green light to big banks to deplete capital, increasing the risk that they will need to adjust credit or rebuild capital during the recovery,” he wrote in a separate statement.

“The temporary suspension of payments to shareholders in large banks due to the COVID-19 shock would create a level playing field and allow all banks to preserve capital without suffering a competitive disadvantage relative to their peers,” he said.

According to the new central bank sensitivity analysis, credit losses for the 34 banks ranged from $ 560 billion to $ 700 billion and capital ratios decreased from 12.0% in the fourth quarter of 2019 to between 9.5% and 7.7% in the hypothetical loss scenarios.

Under the U and W-shaped scenarios, most companies remain well capitalized, but several would reach minimum capital levels, the Fed said.