Fed Warns Banks on Dividends
The Federal Reserve Board yesterday told bank companies experiencing financial difficulties that they should restrict or in some cases eliminate dividends to shareholders.</br></br>The regulatory agency said that banks and companies that own banks (bank holding companies) should not pay dividends that exceed their net income or that would otherwise weaken their financial condition.</br></br>The Federal Reserve regulates about 1,000 of the nationÛªs 15,000 banks and all 6,200 bank holding companies. The Office of the Comptroller of the Currency two weeks ago issued a similar warning, urging federally chartered banks with problem loans to make sure they add enough profits to reserves before paying dividends to shareholders.</br></br>The dividend policies are merely the latest in a series of actions by bank regulatory agencies designed to pressure bank management into a more conservative financial posture.</br></br>In yesterdayÛªs policy statement, the Federal Reserve said that banks and bank holding companies with earnings problems, inadequate capital or other serious problems also should not borrow money to pay dividends nor pay dividends out of unusual or nonrecurring profits, such as the sale of a building.