WASHINGTON – The Federal Reserve is preparing to let healthy banks boost dividends paid to investors.
Banks would need to show the Fed’s bank examiners that they’re in good financial health and that they have adequate capital to absorb potential losses – even after paying the dividend. The Fed’s new guidelines were described by a government official with knowledge of the matter who spoke on condition of anonymity because the guidelines haven’t been issued. They should be released within several weeks, the official said.
The Fed oversees Wall Street’s biggest banks, including Citigroup, Bank of America, JPMorgan Chase & Co., and Wells Fargo.
During the financial crisis, banks cut their dividend payments. By boosting their payments, banks may be able to attract new investors.
The Fed’s regulators oversee the soundness of banks. Technically, banks don’t need the Fed’s formal approval to issue a dividend. But as a practical matter, banks since the financial crisis have consulted the Fed before changing their dividend payments, the official said.
The provisions offer banks a roadmap if they want to increase their dividends. Under the guidelines, banks also would need to show the Fed they have a plan to comply with stricter global capital requirements recently agreed to in Basel, Switzerland.