WASHINGTON — The Federal Reserve is expected soon to start allowing healthy banks with strong capital levels to increase dividend payments, according to people familiar with the matter.
Regulators are expected soon to issue guidance outlining the standards banks must meet to increase such payments, these people said.
Many banks have been in a holding pattern as regulators across the globe hashed out new rules requiring banks to hold more capital as a buffer against future losses. In the wake of the financial crisis, regulators have closely scrutinizing banks' capital management, essentially freezing their ability to increase dividends.
But with global capital rules largely fleshed out and the U.S. financial regulatory overhaul underway, the Fed is expected to begin allowing strong banks to increase dividend payments. The goal is to reward healthy banks and allow them to attract new investors by boosting such payments, according to people familiar with the matter.
To get the Fed's green-light, banks will have to show an ability to meet new global capital rules agreed to in Basel, Switzerland, earlier this year and show a strong enough capital base to absorb any additional capital requirements under the U.S. regulatory overhaul.
Many large banks, such as J.P. Morgan Chase & Co. (JPM), have indicated they want to increase dividend payments soon. Banks slashed their payments during the financial crisis, with some firms now paying out just one penny.
Banking analysts said allowing firms to increase dividends would be another signal to the market that things are stabilizing in the financial sector.
"It signals that the health of the system has improved and will continue to improve going forward," said Todd Hagerman, an analyst with Collins Stewart.