D.he US Federal Reserve bans big banks from buying back shares at least until the end of the year and limits the payment of dividends. This is happening because of the ongoing economic uncertainty, the Fed announced on Wednesday after the American market closed. Such a distribution ban is intended to ensure that the banks remain sufficiently capitalized in the corona pandemic to continue to provide the economy with loans. Institutions with total assets of more than 100 billion dollars are affected by the ban, especially the major banks such as JP Morgan Chase, Citibank and Goldman Sachs.
When the latest stress test was presented at the end of June, the Fed had already recommended that both measures be waived in the fourth quarter: the financial institutions could face credit losses of up to 700 billion dollars due to the pandemic. The guidelines are irrelevant to Deutsche Bank, as it does not pay a dividend or buy back shares in the United States.
Nevertheless, the decision is also interesting for the major European banks. A corresponding appeal by the European Central Bank to forego dividends and share buybacks has been in place for a long time, and was extended again in July until the end of this year. Some institutes like to describe this as a transatlantic distortion of competition, which tends to induce investors to buy American stocks. The ECB wants to review its “recommendation” in the fourth quarter.