Marketwatch has the details:
The Federal Reserve on Friday proposed having big banks with more than $50 billion in assets submit annual capital plans for review. The Fed would evaluate each institution's plan to make capital distributions, such as hiking dividends or repurchasing stock, as part of the capital plan review. In situations where the Fed rejects a bank's capital plans, the institution would need to receive approval from the central bank before issuing dividends or making other capital distributions.
All the Fed really needs to do is extend its own accounting rules to its member banks. If a bank experiences a capital shortfall, we can always assume it will be made whole at some future time by QEx, and can rightfully assume the future dividend payment will be made. Therefore, the bank can turn the dividend line item on its books into a negative liability in the amount of the shortfall, and let that deferred asset restore its capital position. Wallah...solvent.
ReplyDeleteYou can thank me later Alvarez, although you rightfully deserve credit for the idea.