Fed approves dividend plan for big banks

Washington DC — The Federal Reserve has given the OK to 32 of the 35 biggest banks in the U.S. to raise their dividends and buy back shares, judging their financial foundations sturdy enough to withstand a major economic downturn.

Announcing the results of the second round of its annual stress tests, the Fed also approved the plans of Wall Street powerhouses Goldman Sachs and Morgan Stanley, but on condition they keep their total dividend payouts and stock buybacks at current levels.

The new tax law that took effect in January helped tip the two banks’ capital reserves below required levels under the hypothetical stress, the Fed said. It was pegged as a one-time impact of the tax law.

The Fed rejected outright the capital plan of the U.S. holding company of Germany’s Deutsche Bank, citing weaknesses in its assumptions for forecasting revenues and losses.

State Street Corp. gained Fed approval on condition that it improve its analysis of hypothetical lending risks with other big banks.