May 20, 2022
U.S. Federal Reserve

The Federal Reserve has announced it is lifting the ban on stock buybacks by large banks in the first quarter of 2021, subject to limits based on profits in 2020.

The ban was put in place earlier this year by the Fed to ensure the sector had enough capital to continue functioning through the coronavirus pandemic. The decision caused annoyance amongst a number of lenders who thought it was overkill.

JPMorgan Chase, the largest U.S. bank by assets and one of the most vocal in their opposition to the original ban, confirmed they planned to immediately recommence purchases. JPMorgan Chase’s share price was up 5.3% in after-hours trading following the news, along with strong performances for other bank stocks on the back of the announcement.

Many analysts had expected the Fed to keep the restrictions in place, but the announcement indicates an increased level of satisfaction at the capital levels major U.S. banks have managed to accumulate since the start of the pandemic.

Today’s announcement doesn’t mark a complete reversal of the decision implemented in June, and some restrictions remain in place. In order for buybacks to be allowed the aggregate amount of the repurchases and dividends cannot exceed the average of net income for the four proceeding quarters.

“If the firm does not earn income, it will not be able to pay a dividend or make repurchases” the Fed said in a statement.