In face of continuing coronavirus-bred uncertainty, Fed extends programs to shore up credit, bar share repurchases

Continued economic and financial uncertainty related to the impact of the coronavirus crisis has moved the Federal Reserve to extend programs meant to help banks face the challenges.

The Fed Thursday said it has extended to March 31, 2021, temporary actions aimed at increasing the availability of intraday credit extended by Federal Reserve Banks on both a collateralized basis and uncollateralized basis. The actions had been scheduled to end Sept. 30 (Wednesday).

Earlier (on Wednesday), the Fed said it had likewise extended (for an additional quarter, or to year’s end) measures affecting large banks to ensure that they “maintain a high level of capital resilience.” Those measures were also slated to expire Sept. 30.

The temporary actions on intraday credit (first announced in April) do three things, according to a Fed release: suspend uncollateralized intraday credit limits (net debit caps) and waive overdraft fees for institutions that are eligible for the primary credit program; permit a streamlined procedure for secondary credit institutions to request collateralized intraday credit (max caps); and suspend two collections of information that are used to calculate net debit caps.

The Fed said the extension is consistent with the series of actions it announced to support the flow of credit to households and businesses and “to mitigate the disruptions from COVID-19.” In particular, the Fed said, the temporary actions reinforce efforts to “encourage regular use of intraday credit by healthy financial institutions.”

In the other announcement, the Fed announced that, for the fourth quarter, large banks – those with more than $100 billion in total assets – will be prohibited from making share repurchases. The Fed added that dividend payments will be capped and tied to a formula based on recent income. “The capital positions of large banks have remained strong during the third quarter while such restrictions were in place,” the Fed said.

The move, the Fed indicated, was not because the large banks are insufficiently capitalized. On the contrary, the Fed said, June results of annual stress tests and additional analysis found that all large banks were sufficiently capitalized.

“Nonetheless, in light of the economic uncertainty, the Board put several restrictions in place to preserve bank capital, which provides a cushion against loan losses and supports lending,” the Fed said.

The Fed reiterated that, later this year, it will conduct a second stress test to further gauge the resiliency of large banks; results will be released by the end of the year.

Federal Reserve Board extends temporary actions aimed at increasing the availability of intraday credit extended by Federal Reserve Banks

Federal Reserve Board announces it will extend for an additional quarter several measures to ensure that large banks maintain a high level of capital resilience

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