The U.S. Federal Reserve on Thursday proposed tougher conditions for banks to pay dividends or buy back shares as part of a number of changes to its annual stress tests to measure banks' ability to withstand financial shocks.
_0">Banks need to ask the Fed for approval for shareholder payouts each year, part of a set of new rules to make banking safer after the financial crisis.
Banks must submit capital plans that disclose whether they intend to pay dividends or buyback shares, as well as any planned increases in capital through raising new debt or shares.
The new rule would prevent banks from increasing dividends or buying back shares if they did not meet the capital increases that they had pledged to the Fed.
"Some large bank holding companies included issuances of capital instruments in their capital plans, but did not execute these planned issuances," the Fed said.
For instance, if a bank had planned a $50 million stock issuance, and combined dividends and stock repurchases of $100 million, but it only raised $25 million in new shares, it would have to reduce the shareholder payout by $25 million, the Fed said in its proposed rule.
The central bank also shifted the dates by which banks have to submit their capital plans.
The biggest banks with more than $50 billion of total assets would need to submit their plans by April 5, three months later than under the current rule makings.
The industry has until Aug. 11 to comment on the proposed rule which would then come into force in the 2015-2016 stress test cycles, the Fed said.
(Reporting by Douwe Miedema; Editing by Cynthia Osterman and Lisa Shumaker)