The mystery behind the Fed’s refusal to suspend bank dividends

By Sheila Bair (original source Yahoo Finance) 

“The $2.2 trillion stimulus bill recently passed by Congress sensibly restricts large companies getting help under that bill from distributing capital to shareholders or paying outsized executive compensation. These restrictions are not punitive toward shareholders and executives.

Rather they reflect the obvious: struggling companies should prioritize payroll and other operational costs until the COVID-19 crisis passes. Cash payouts to shareholders and executives are not a good use of precious capital right now. But that same rationale also applies to the nation’s largest banks, which are also getting substantial government help from the Federal Reserve.

Every dollar of capital a big bank distributes to shareholders and top executives is a dollar that does not support credit which struggling businesses and households need. Why hasn’t the Fed put banks under similar restrictions?”

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