The Americans for Financial Reform (AFR) called on the industry and regulators to tell big banks they should not be permitted to pay dividends to shareholders during the COVID-19 pandemic and its aftermath.
The consumer group said the industry should make the decision itself, but if it would not, then regulators should step in to suspend dividend payments.
“In light of the ongoing and unpredictable economic impacts of the pandemic, banks should themselves stop all capital distributions; if they are refusing to do so, U.S. regulators must take forceful action to require such a stop,” the group said in a release. “Millions of Americans are requesting forbearance on loans which they have suddenly lost the means to repay, and corporations have drawn over $330 billion from their revolving credit lines with the banks to shore balance sheets ahead of difficult times. But instead of using their capital to support this credit, banks are paying a disproportionate amount out in dividends.”
AFR said in the past weeks, big banks committed to paying out $13 billion in dividends, which would be distributed in late April and early May.
“If this level of dividends continues for the rest of 2020, big banks could be permitted to pay out over $50 billion in dividends for 2020. Collectively, in the first quarter of 2020 big banks actually paid out more than 100 percent of their income in dividends,” AFR stated. “Dividend payments distribute capital to shareholders that could instead be used to support the economy during this crisis period.”
AFR stated that as credit extended by banks is being supported either by private capital or public support, permitting dividend payments means regulators effectively as allowing banks to transfer funds to shareholders, leaving the public to fill in the gaps.
“Because of the need to preserve bank capital during a period of economic crisis, regulators in Europe and Asia have already required banks to cancel all capital distributions, including dividends. However, U.S. banking regulators are permitting dividends to continue,” AFR stated.
The consumer group cited Federal Reserve Bank of Minnesota President Neel Kashkari, who has said that dividends and share buybacks could be raised after the epidemic has passed.
“But underestimating the virus’s impact could force them to raise capital after they’ve already lost hundreds of billions,” AFR concluded.