Banks Forced By Fed To “Conserve Capital”
In a 4 to 1 vote on Thursday, the United States Federal Reserve voted to require large banks to conserve cash.
This vote requires certain banks to suspend share buybacks. And it also caps the dividends these financial firms can pay to shareholders.
The Fed now requires banks and other financials to surpass certain capital levels… If they don’t, they’re barred from buying back shares and paying dividends above a certain level.
The new rules go into effect immediately. And affect at least the 3rd quarter of 2020…
I said at least above because The Fed will reassess each entity’s capital levels every quarter and make decisions from there.
Why did The Fed enact these rules?
Because its latest stress tests showed in a “worst case Covid-19 scenario” many banks would get close to their minimum capital requirements.
And that would put them and the entire financial system at risk.
This new stress test also showed that all banks capital levels are fine now.
But The Fed wants to avoid a repeat of the 2007 and 2008 Financial Crisis… This is why they’re working to stay ahead of things by requiring banks to conserve capital now.
The lone Fed member to vote against this rule – Federal Reserve Governor Lael Brainard – did so because she wanted all banks to conserve capital already.
Even if their current capital structure and net income levels are fine.
She wants all banks to conserve capital now because she “doesn’t support giving the green light for large banks to deplete capital” in these uncertain times.
This means banks are getting less money on the loans already outstanding. And this means banks will have less money to lend out as new loans in the future.
This latest Fed stress test showed cracks beginning to form in the nations banking system… And it working to get ahead of those issues by requiring financial service institutions to conserve capital.
Click here to learn the 3 Reasons Banks Are In Trouble In The Short Term .
And click here to find out what happens when Millions of Americans Are Now Longer Paying Their Bills and what this means to you.