�౦��Ϸ����

Director Chopra’s proposal would generally prohibit all �౦��Ϸ����-supervised institutions from paying capital distributions when the Federal Reserve invokes emergency authority under Section 13(3) of the Federal Reserve Act (“Section 13(3)”).¹ Although the Board is not voting on this item, the proposal has a litany of problems, and I will briefly mention just a few. 

First, this would mean that, if Section 13(3) is invoked, �౦��Ϸ����-supervised institutions, which include most community banks, would be prohibited from paying distributions, while OCC- and Federal Reserve-supervised institutions would not. Second, it would mean that bank holding companies with profitable nonbank subsidiaries would generally be able to continue making distributions, while bank holding companies with only �౦��Ϸ����-supervised subsidiaries generally would not. Third, it would mean that well-capitalized, well-rated banks that do not utilize government support would be prohibited from paying distributions while nonbanks that do utilize a Federal Reserve facility would not. 

As is well known, an industry-wide prohibition on banks’ distributions makes banks less attractive as investments and hurts their ability to raise capital.² The Federal Reserve designed its stress test program assuming that banks would continue to pay distributions during periods of economic stress.³ Furthermore, a blanket prohibition would make the probability of private capital stepping in to rescue struggling banks during such periods – a common, stability-enhancing occurrence over the years – far less likely, increasing the likelihood that such banks end up in �౦��Ϸ���� receivership instead. 

This is an overly-broad, counterproductive proposal that would put �౦��Ϸ����-supervised institutions at a significant disadvantage relative to their bank and nonbank peers.