Federal Reserve expected to ease its grip on bank dividends

Mitchell Hartman Mar 18, 2011
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Federal Reserve expected to ease its grip on bank dividends

Mitchell Hartman Mar 18, 2011
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STEVE CHIOTAKIS: Today the Federal Reserve is expected to lift restrictions on some of the nation’s biggest banks. That’s so they can pay out more of their profits to shareholders. The Fed’s been keeping a pretty tight rein on the banks since bailing them out during the financial crisis.

Here’s Marketplace’s Mitchell Hartman.


MITCHELL HARTMAN: The Fed has just finished stress-testing the nation’s biggest banks, and it’s expected to say many are now healthy enough to shell out some of the cash they’ve piled up, by boosting dividends and buying back stock.

CORNELIUS HURLEY: I guess you could say they’re profitable but for the wrong reasons.

Finance professor Cornelius Hurley at Boston University says mega-banks like Wells Fargo, JPMorgan Chase, and Goldman Sachs have strong balance sheets now in part because the government has deemed them ‘too big to fail’ and implicitly guaranteed their debts. That improves their credit ratings and lowers their cost of doing business. Which means they can now reward their shareholders.

HURLEY: And oh, by the way, at the very time that they’re allowing this transfer of wealth, the Federal Deposit Insurance Fund itself has a negative balance of $9 billion. One would think that there are many other uses for this money than returning it to the shareholders.

Critics say they should also be lending out more money to private businesses to create jobs.

I’m Mitchell Hartman for Marketplace.

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