Fed issues rules to let banks boost dividends

By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney.com) -- The Federal Reserve issued a new set of guidelines Wednesday that pave the way for healthy banks to begin hiking dividends and repurchasing shares next year.

The Fed said that the 19 banks that completed the Fed's stress tests in May 2009, including Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Goldman Sachs (GS, Fortune 500), will have to submit their capital plans for 2011 early next year and detail the strength of their balance sheets.

The central bank will evaluate the banks' plans using "a number of criteria," with emphasis on the ability to absorb losses over two years, even under "adverse" economic conditions.

The Fed said banks must also repay or replace any government investment in the form of preferred or common stock before raising payouts or buying back shares.

Many of the larger banks have been paying just a penny or a nickel per share dividend each quarter since the financial sector cratered in 2008.

Limiting shareholder payouts has helped the banking giants restore their capital bases over the past two years. But some investors in those banks are eager for higher dividends now that the worst appears to be over for the financial sector.

Federal Reserve Governor Daniel Tarullo called the central bank's approach to handling requests by big bank holding companies "conservative" during in a speech last week, before the guidelines were released.

He said the Fed will move slowly in approving higher dividends in order to maintain stability in the financial system.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,778.15 421.28 2.43%
Nasdaq 4,748.40 104.09 2.24%
S&P 500 2,061.23 48.34 2.40%
Treasuries 2.20 0.06 2.61%
Data as of 10:20pm ET
Company Price Change % Change
Bank of America Corp... 17.53 0.27 1.56%
Apple Inc 112.65 3.24 2.96%
Oracle Corp 45.35 4.19 10.18%
General Electric Co 25.14 0.71 2.91%
Microsoft Corp 47.52 1.78 3.89%
Data as of 4:03pm ET

Sections

Russia's economic turmoil has already spread to companies in the West and many brands are bracing for a bigger blow to earnings. More

The shale boom has been a blessing to Texas, but tumbling oil prices are casting a shadow over the state. More

Portland's mayor says the city will create new rules, eventually allowing Uber to operate there. More

With two recent IPOs and a digitally-inclined audience of entrepreneurs, non-traditional financing could finally get its big break. More

Payday lenders are spending millions of dollars in Washington in an attempt to get powerful politicians on their side as a government crackdown on the industry heats up. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.