FED NOTES: Originally published in the Winter 2020 edition of Bank Owner magazine.
By Rachel Robison
When a BHC considers declaring and paying a dividend that exceeds current period earnings, it should consult with its Reserve Bank contact, according to the guidance in SR Letter 09-4 (Applying Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding Companies). The Reserve Bank appreciates the willingness of BHCs in the Ninth District to engage in these consultations.
I’m excited to share some good news: dividend-related consultations have now been fast-tracked, and often the Reserve Bank will respond within two or five days after receiving an inquiry. Attachment C to SR 09-4 provides more information, including the circumstances in which BHCs can expect a two- or five-day response.
When submitting a consultation request, a BHC should describe whether the BHC qualifies for expedited consultation. If the BHC does not qualify for a two-day response, it should also provide sufficient analysis for Reserve Bank staff to evaluate the request. This analysis should include (with respect to the consolidated BHC organization, as applicable): the level and trend of noncurrent assets; criticized and classified assets; the adequacy of the organization’s allowance for loan and lease losses; potential risk resulting from asset concentrations; and prospective earnings relative the organization’s capital position, including consideration of current economic conditions. The Reserve Bank may require additional time if the consultation request does not sufficiently cover these factors.
Rachel Robison is an Examiner with the Federal Reserve Bank of Minneapolis. She is responsible for the Minneapolis Fed’s supervision of small shell holding companies.