Do Payout Restrictions Reduce Bank Risk?

Fulvia Fringuellotti and Thomas Kroen ()
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Fulvia Fringuellotti: https://www.newyorkfed.org/research/economists/fringuellotti

No 20250108, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: In June 2020, the Federal Reserve issued stringent payout restrictions for the largest banks in the United States as part of its policy response to the COVID-19 crisis. Similar curbs on share buybacks and dividend payments were adopted in other jurisdictions, including in the eurozone, the U.K., and Canada. Payout restrictions were aimed at enhancing banks’ resiliency amid heightened economic uncertainty and concerns about the risk of large losses. But besides being a tool to build capital buffers and preserve bank equity, payout restrictions may also prevent risk-shifting. This post, which is based on our recent research paper, attempts to answer whether and how payout restrictions reduce bank risk using the U.S. experience during the pandemic as a case study.

Keywords: banking; payout restrictions; risk-shifting; prudential regulation (search for similar items in EconPapers)
JEL-codes: G21 G28 G35 G38 (search for similar items in EconPapers)
Date: 2025-01-08
New Economics Papers: this item is included in nep-fmk and nep-rmg
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