Stock dividends

The biggest U.S. banks, led by JPMorgan Chase and Bank of America, are expected to pay out $142 billion in capital to shareholders after clearing this year’s stress tests.

For banks that pass this year’s stress tests, the Federal Reserve said it will eliminate the restrictions on dividends and share buybacks while subjecting those institutions instead to the stress capital buffer.

Federal Reserve Chair Jerome Powell said the central bank will consider the pace of coronavirus vaccinations and other factors to determine if restrictions on dividends and share repurchases will continue.

The Federal Reserve's “midcycle” assessment — conducted in light of the COVID-19 pandemic — said the path of the economic recovery is still uncertain even though the banks that were evaluated maintained adequate capital levels under hypothetical scenarios.

As with most things related to 2020, COVID-19 will be a deciding factor as the Federal Reserve considers whether banks are able to increase their dividends or resume share buybacks.

The central bank issued a proposal aligning recent stress testing changes with supervisory standards that are tailored to an institution's size and complexity.

The Federal Reserve will continue its ban on share repurchases for banks with more than $100 billion of assets into the fourth quarter and will cap dividend payments using a formula based on recent income.

The agency has scheduled an extra assessment of institutions' strength to incorporate more recent economic data during the pandemic.

The agencies completed steps to ease a community bank capital measure temporarily and to delay a new credit-loss accounting standard.

With big banks largely shunning the program, small banks see an opening to grab more market share in commercial lending.