The Federal Reserve plans to conduct a second stress test of the US banking sector later in the year. ©AFP/File Daniel SLIM

Washington (AFP) – The Federal Reserve on Wednesday extended a ban on share buybacks by US banks into the fourth quarter, aiming to ensure they have sufficient capital to weather the coronavirus downturn.

“For the fourth quarter of this year, large banks — those with more than $100 billion in total assets — will be prohibited from making share repurchases,” the central bank said in a statement. 

“Additionally, dividend payments will be capped and tied to a formula based on recent income. The capital positions of large banks have remained strong during the third quarter while such restrictions were in place.”

The announcement comes after the cental bank in June ordered 34 major US banks to suspend buybacks in the third quarter and limit dividend payments.

The decision was the first such move since the 2008-2010 global financial crisis and came after the Fed announced the results of its banking system stress tests for the year.

The stress test results varied depending on the severity of the downturn modeled, but Fed Vice Chair Randal Quarles at the time said the outcomes were generally positive.

In its Wednesday announcement, the Fed said it would conduct a second stress test later this year.

The central bank rolled out trillions of dollars in liquidity to stop financial markets from seizing up as the coronavirus forced businesses to close in mid-March, sending unemployment spiking to 14.7 percent in April, though it since moderated to 8.4 percent in August.

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.