The Fed allows some banks to boost dividends

A bank sign

TEXT OF INTERVIEW

JEREMY HOBSON: You may have missed it in yesterday's big rally on Wall Street, but bank stocks jumped especially high. That was thanks to news that the Federal Reserve might let some banks boost dividend payments to investors.

Marketplace's Scott Tong joins us now live from Washington with more on this. Good morning.

SCOTT TONG: Good morning, Jeremy.

HOBSON: What exactly is the Fed allowing banks to do?

TONG: To cut bigger checks to their investors. A dividend is kind of like interest on your bank account. Say you, Jeremy the investor, own bank stock. You can make money two ways: the stock price goes up and you sell. Or you get a dividend, a share of the profits. We all know banks have been weak lately. And the Fed has limited their dividend payouts to protect the vital organs, or capitals. At least until this news which first came out in the Wall Street Journal. I just spoke to Justin Urquhart Stewart at Seven Investment Management in London. He says the new rules on bigger dividends are a sign of better health.

JUSTIN URQUHART STEWART: If it means they can start doing that, because they are now strong enough to pay dividends, that's a positive sign for investors. And also for the economy.

HOBSON: Okay, a positive sign, but does this mean the banks are back, Scott?

TONG: Reports say only the stronger banks boost their dividends. Lots of them, as we know, are still working off bad debt, waiting for the housing market to bounce back. This is one step. But an indicator the banking sector is on the way to getting back to its core job, which is pumping money through the economy.

HOBSON: Marketplace's Scott Tong in Washington, thanks.

TONG: You're welcome.

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