Banks need to consult the Fed before issuing dividend

The Federal Reserve issued a guidance letter on Tuesday indicating that bank need to check with the central bank should they plan to pay dividends to address "safety and soundness concerns." The bank holding companies need to notify the Fed of any dividends that exceed earnings for the quarter or if the bank’s capital position is likely to deteriorate.

The letter comes as some bank are being criticized on how the government capital is used. They are accused of using the funds to pay dividends instead of increasing lending. Conversely, JPMorgan announced that it is cutting its quarterly dividend from 38 cents to 5 cents, that is expected to save the company $5 billion a year.

The Fed's Division of Banking Supervision and Regulation said the guidance is projected especially to banks "experiencing financial difficulties and/or receiving public funds."

Source: Associated Press