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| Fed Gives Banks a Break to Keep Markets Calm, Asking for Little in Return | Fed Gives Banks a Break to Keep Markets Calm, Asking for Little in Return |
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| In 2008, as the global financial system was melting down, America’s largest banks continued paying dividends. | In 2008, as the global financial system was melting down, America’s largest banks continued paying dividends. |
| Those shareholder payouts were made both by institutions that were holding up amid the storm, like Bank of America, and by companies that were teetering on the brink. Both Lehman Brothers and Merrill Lynch continued handing out piles of cash to prove that they were solvent. | Those shareholder payouts were made both by institutions that were holding up amid the storm, like Bank of America, and by companies that were teetering on the brink. Both Lehman Brothers and Merrill Lynch continued handing out piles of cash to prove that they were solvent. |
| They were not. And those payouts left them weaker, exacerbating shortfalls that would ultimately cause their demise. | They were not. And those payouts left them weaker, exacerbating shortfalls that would ultimately cause their demise. |
| As the coronavirus puts the financial system to its biggest test since 2008, there are growing concerns that the Federal Reserve is ignoring the costly and painful lessons of the last crisis by allowing banks to continue paying dividends. | As the coronavirus puts the financial system to its biggest test since 2008, there are growing concerns that the Federal Reserve is ignoring the costly and painful lessons of the last crisis by allowing banks to continue paying dividends. |
| While this crisis did not begin in the financial system, the virus is causing severe strain across various markets, and has at times made it hard to trade everything from corporate debt to Treasury securities. The Fed has rolled out programs to ensure that the inner workings of finance do not collapse and that banks can continue lending despite a severe downturn. | While this crisis did not begin in the financial system, the virus is causing severe strain across various markets, and has at times made it hard to trade everything from corporate debt to Treasury securities. The Fed has rolled out programs to ensure that the inner workings of finance do not collapse and that banks can continue lending despite a severe downturn. |
| Officials have loosened post-crisis rules put in place to ensure that banks had big enough financial cushions to continue lending, alongside other accommodations. They have relaxed borrowing caps, encouraged banks to dip into their extra layers of capital and liquidity, and are offering up cheap funding programs, all in an effort to encourage banks to keep making loans. | Officials have loosened post-crisis rules put in place to ensure that banks had big enough financial cushions to continue lending, alongside other accommodations. They have relaxed borrowing caps, encouraged banks to dip into their extra layers of capital and liquidity, and are offering up cheap funding programs, all in an effort to encourage banks to keep making loans. |
| Yet so far, policymakers have not stopped banks from continuing to pay dividends, allowing them to part with cash that could put them in a stronger position to continue serving as lenders and intermediaries should the unpredictable crisis deepen — though such curbs remain a possibility. | Yet so far, policymakers have not stopped banks from continuing to pay dividends, allowing them to part with cash that could put them in a stronger position to continue serving as lenders and intermediaries should the unpredictable crisis deepen — though such curbs remain a possibility. |
| “I don’t think that’s something that needs to be done at this point,” Chair Jerome H. Powell said during a Brookings Institution webcast on April 9. “We’ll be watching to see how things evolve, but I don’t think that step is appropriate at this time.” | “I don’t think that’s something that needs to be done at this point,” Chair Jerome H. Powell said during a Brookings Institution webcast on April 9. “We’ll be watching to see how things evolve, but I don’t think that step is appropriate at this time.” |
| Big banks have voluntarily suspended stock buybacks for the time being, but they are loath to halt dividends because doing so could signal that their firm is in bad financial shape. | Big banks have voluntarily suspended stock buybacks for the time being, but they are loath to halt dividends because doing so could signal that their firm is in bad financial shape. |
| Dividends at the biggest banks will probably amount to about $40 billion this year, according to estimates by Gregg Gelzinis, a senior policy analyst at the left-leaning Center for American Progress. While substantial, that is less than what they will retain by halting share buybacks. | Dividends at the biggest banks will probably amount to about $40 billion this year, according to estimates by Gregg Gelzinis, a senior policy analyst at the left-leaning Center for American Progress. While substantial, that is less than what they will retain by halting share buybacks. |
| If banks do not do any buybacks this year, it will probably give them an additional $150 billion in capital, he said. So far, they’ve committed to a two-quarter suspension, so are set to preserve about half that. | If banks do not do any buybacks this year, it will probably give them an additional $150 billion in capital, he said. So far, they’ve committed to a two-quarter suspension, so are set to preserve about half that. |
| While Mr. Powell does not appear ready to impose restrictions, minutes of the Fed’s March 15 meeting show that some Fed officials believe the central bank should be making sure that firms hang on to all the cash that they can in an uncertain environment. | While Mr. Powell does not appear ready to impose restrictions, minutes of the Fed’s March 15 meeting show that some Fed officials believe the central bank should be making sure that firms hang on to all the cash that they can in an uncertain environment. |
| “Several participants commented that banks should be discouraged from repurchasing shares from, or paying dividends to, their equity holders,” according to the minutes, which were released last week. | “Several participants commented that banks should be discouraged from repurchasing shares from, or paying dividends to, their equity holders,” according to the minutes, which were released last week. |
| And the Bank for International Settlements, which advises global central banks, said in a new brief that while a blanket restriction on payouts would “reduce banks’ attractiveness to investors,” it would also “limit the risk of signaling a bank’s relative weakness.” | And the Bank for International Settlements, which advises global central banks, said in a new brief that while a blanket restriction on payouts would “reduce banks’ attractiveness to investors,” it would also “limit the risk of signaling a bank’s relative weakness.” |
| Some former Fed officials agree that the central bank should consider constraining payouts. | Some former Fed officials agree that the central bank should consider constraining payouts. |
| “We learned that we let way too much money out the door in that crisis,” Janet L. Yellen, the former Fed chair, said of 2008. She hasn’t talked to Fed officials about their current thinking, but believes they should ask banks to halt dividends. “We don’t know where this is going, this is really a tail event and a great threat to the country.” | “We learned that we let way too much money out the door in that crisis,” Janet L. Yellen, the former Fed chair, said of 2008. She hasn’t talked to Fed officials about their current thinking, but believes they should ask banks to halt dividends. “We don’t know where this is going, this is really a tail event and a great threat to the country.” |
| If the Fed halts dividends while banks are still functioning normally, it would come across as precautionary to investors, said Daniel K. Tarullo, a former Fed governor and a key architect of much of the post-crisis bank regulatory regime. If it waits to take that step further down the road, when signs of financial system trouble are mounting, it could instead be read as a signal of trouble. | If the Fed halts dividends while banks are still functioning normally, it would come across as precautionary to investors, said Daniel K. Tarullo, a former Fed governor and a key architect of much of the post-crisis bank regulatory regime. If it waits to take that step further down the road, when signs of financial system trouble are mounting, it could instead be read as a signal of trouble. |
| “At the early signs of what could be a major challenge, that’s when you push the banks to husband their capital,” he said. “That is the time when it wouldn’t have been a signal and would instead would be regarded as a hedge.” | “At the early signs of what could be a major challenge, that’s when you push the banks to husband their capital,” he said. “That is the time when it wouldn’t have been a signal and would instead would be regarded as a hedge.” |
| “It is disappointing that this is not the course the Fed has taken,” he said, adding that after the crisis, regulators learned that the “playbook” should be to suspend dividends and buybacks early. | “It is disappointing that this is not the course the Fed has taken,” he said, adding that after the crisis, regulators learned that the “playbook” should be to suspend dividends and buybacks early. |
| Banking groups say there is no need to stop paying dividends since the sector is in much stronger shape than it was headed into the 2008 crisis. | Banking groups say there is no need to stop paying dividends since the sector is in much stronger shape than it was headed into the 2008 crisis. |
| “There’s no evidence of a need to suspend dividends based on the conditions of these institutions,” Kevin Fromer, head of the Financial Services Forum, an advocacy group for large banks, said in an interview last week. | “There’s no evidence of a need to suspend dividends based on the conditions of these institutions,” Kevin Fromer, head of the Financial Services Forum, an advocacy group for large banks, said in an interview last week. |
| Banks are already taking a beating amid the coronavirus pandemic. JPMorgan Chase & Company reported first-quarter earnings per share of 78 cents, less than half of what analysts were estimating, as reserve holdings mounted and markets gyrated. Wells Fargo’s earnings per share dipped to just 1 cent and it set aside more money for credit losses, it said Tuesday. But the firms do have more capital to get them through tough times than they did before the 2008 financial crisis, thanks to post-crisis regulatory changes. | Banks are already taking a beating amid the coronavirus pandemic. JPMorgan Chase & Company reported first-quarter earnings per share of 78 cents, less than half of what analysts were estimating, as reserve holdings mounted and markets gyrated. Wells Fargo’s earnings per share dipped to just 1 cent and it set aside more money for credit losses, it said Tuesday. But the firms do have more capital to get them through tough times than they did before the 2008 financial crisis, thanks to post-crisis regulatory changes. |
| Updated June 12, 2020 | Updated June 12, 2020 |
| So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. | So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. |
| Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. | |
| A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. | A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. |
| The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. | The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. |
| Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. | Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. |
| Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home. | Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home. |
| States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. | States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. |
| Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. | Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. |
| If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) | If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) |
| Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. | Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. |
| The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. | The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. |
| If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. | If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. |
| If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. | If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. |
| Fed leaders have become more bank-friendly under the Trump administration, which, paired with the industry’s improved financial position, is probably driving the reluctance to cut dividends. | Fed leaders have become more bank-friendly under the Trump administration, which, paired with the industry’s improved financial position, is probably driving the reluctance to cut dividends. |
| Instead of reining in payouts, Fed officials have actually made changes that allow banks to continue making them. Banks are generally allowed to dip into their capital buffers in times of stress, and are encouraged to do that to support lending and spending. But they avoid doing so, because it activates regulations that require them to cut dividends. | Instead of reining in payouts, Fed officials have actually made changes that allow banks to continue making them. Banks are generally allowed to dip into their capital buffers in times of stress, and are encouraged to do that to support lending and spending. But they avoid doing so, because it activates regulations that require them to cut dividends. |
| On March 17, the Fed said it would make those restrictions phase in more gradually to encourage banks to use the buffer. | On March 17, the Fed said it would make those restrictions phase in more gradually to encourage banks to use the buffer. |
| Weeks later, the central bank’s Board of Governors in Washington said it would change a key regulation — the supplementary leverage ratio, which gauges capital held against assets — for a year. Banks are no longer required to count their holdings of Treasuries and cash deposits at the Fed toward the ratio, which will allow big banks to lower their capital by about 2 percent. | Weeks later, the central bank’s Board of Governors in Washington said it would change a key regulation — the supplementary leverage ratio, which gauges capital held against assets — for a year. Banks are no longer required to count their holdings of Treasuries and cash deposits at the Fed toward the ratio, which will allow big banks to lower their capital by about 2 percent. |
| The Fed probably had to make some sort of leverage ratio tweak. The central bank is pumping reserves, bank holdings at the Fed, into the financial system as it makes giant bond purchases to smooth markets. That, paired with an influx of deposits as investors cash out their investments, has saturated bank balance sheets. | The Fed probably had to make some sort of leverage ratio tweak. The central bank is pumping reserves, bank holdings at the Fed, into the financial system as it makes giant bond purchases to smooth markets. That, paired with an influx of deposits as investors cash out their investments, has saturated bank balance sheets. |
| When banks hold too many assets (like Treasury bonds) relative to capital (common stock and retained earnings), they avoid taking on more and throwing their regulatory ratios out of whack. | When banks hold too many assets (like Treasury bonds) relative to capital (common stock and retained earnings), they avoid taking on more and throwing their regulatory ratios out of whack. |
| In the current environment, that could disrupt markets. If banks are not willing to snap up Treasury bonds as the government unleashes a flood of them to pay for its $2 trillion coronavirus relief package, the Fed would have to buy bonds even more aggressively or risk a meltdown. If banks serve as go-betweens, holding the bonds for a time, Treasuries can find their way into household investment portfolios. Absorption is easier. | In the current environment, that could disrupt markets. If banks are not willing to snap up Treasury bonds as the government unleashes a flood of them to pay for its $2 trillion coronavirus relief package, the Fed would have to buy bonds even more aggressively or risk a meltdown. If banks serve as go-betweens, holding the bonds for a time, Treasuries can find their way into household investment portfolios. Absorption is easier. |
| But the change gives big banks, which have long detested the leverage ratio, a major win. And while it is temporary, industry experts speculate that banks will push hard to make sure it never changes back. | But the change gives big banks, which have long detested the leverage ratio, a major win. And while it is temporary, industry experts speculate that banks will push hard to make sure it never changes back. |
| There is clearly nervousness at the Fed that the newly free capital could be used to ramp up payouts. The central bank’s statement cautioned that the change was to allow banks “to serve as financial intermediaries, rather than to allow banking organizations to increase capital distributions.” | There is clearly nervousness at the Fed that the newly free capital could be used to ramp up payouts. The central bank’s statement cautioned that the change was to allow banks “to serve as financial intermediaries, rather than to allow banking organizations to increase capital distributions.” |
| It said it will “administer the interim final rule accordingly.” | It said it will “administer the interim final rule accordingly.” |