Interesting Article about Banks

Fed Will Let Some Big Banks Restore Stock Dividends

Published: Friday, 18 Mar 2011 | 11:36 AM ET

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By: Reuters

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The Federal Reserve will allow some of the largest U.S. banks to boost or restart dividend payments this year but will restrict the payouts to 30 percent or less of the company's expected earnings, the central bank said on Friday.

The Federal Reserve headquarters in Washington, DC.

The Fed is notifying the 19 largest banks, including Citigroup [C  4.5198    0.0698  (+1.57%)   ], Bank of America [BAC  14.249    0.269  (+1.92%)   ] and Goldman Sachs [GS  159.20    3.45  (+2.22%)   ], whether they passed the second round of stress tests and whether they have won approval to pay out dividends.

Improvements in economic conditions and cash positions at the largest financial institutions have convinced the Fed that some of the largest banks can start to reduce massive capital cushions that were built up over the course of the financial crisis.

According to the Fed's data, common equity increased by more than $300 billion at the big banks from the end of 2008 through 2010.

"The return of capital to shareholders under appropriate conditions is a step in the process of improvement in the financial sector and will help to promote banks' long-term access to capital," the central bank said in a statement.

During this round of stress tests, the Fed relied on the banks to analyze whether they could withstand adverse economic conditions. In 2009, the Fed focused on generating its own estimates of banks' capital under difficult economic conditions. The Fed did not release results of the stress tests.