Question

Shareholders like dividends and share buy backs. Explain what dividends and share buy backs are and what limits the Federal Reserve has placed on big banks' ability to pay dividends and buy back shares, How do dividends and share buy backs affect a bank’s (or any corporation’s) resiliency, that is their ability to survive during an economic downturn.   (14 points. 7-8 sentences should be sufficient)

Answer 1

Share dividends are the share in profits that are distributed to the existing shareholders of the company from the net profits at the end of an accounting period. Dividend can be paid in interim as well as final dividend and it can be paid to both preference and equity shareholders. It represents the strong financial performance of a company's and ability to reward it's shareholders who've shown their trust by investing in the company.

Share buyback is usually in instances where a company, which has firmly established it's business, now wants to buy back the shares from shareholders to consolidate it's position. It reflects the management's confidence in company's future and strong financial position.

The Federal Reserve has temporarily restricted all shareholder payouts by the nation's biggest banks, barring them from making any share buybacks or increasing dividend payouts in trying to keep the banks stronger enough to keep lending during the pandemic induced downturn.

Their estimates reveal that the loans turning as non-performing assets (NPAs) could be worse than 2008 recession.