Several
banks have made submissions to the Federal Reserve about their capital
plans for resuming dividends or buying back their own stock.
The
great recession of mid 2008 has terribly hit the global economy. The
banking sector in US has undergone a drastic change over the period of
time. In recent times, investors are putting a keen eye on the dividend
paying companies. Before the financial crises, various major banks in US
were reliable sources for dividends. But there is a substantial
reduction and cut offs in the dividend payments by most of the banks by
mid 2009.
Banks
failed to repay the bail out money received by them under the Troubled
Assets Relief Program from the US treasury department. As a result, they
were not allowed to increase their dividends. However, several banks
have made submissions to the Federal Reserve about their capital plans
for resuming dividends or buying back their own stock. Guidelines were
issued by the Fed for issuing dividends if the required payments have
been made by the banks and they meet capital requirements for the
proposal.
Banks
willing to increase dividends have to adhere to the new set of capital
standards known as Basel III, which suggests that bank will be only be
allowed to pay or increase the dividends only if it maintains a Tier 1
capital ratio of 12% and operating in a firm environment. The Fed also
explained that banks which have not yet repaid the amount of the
government bailout under TARP do not qualify for making or increasing
dividend payments. This indisposes many regional banks, which have
struggled to return to the profitability.
