Federally regulated financial institutions are still restricted from returning capital to investors, but federal regulators said they may allow them to pay special dividends.
In a letter to those institutions, the Office of the Superintendent of Financial Institutions (OSFI) said that there’s still too much uncertainty to alter measures adopted to preserve capital in response to the pandemic. In March, OSFI told firms not to increase their dividends, buy back shares, or increase executive compensation.
“Such capital distributions remain inappropriate at this time to ensure institutions have adequate capital to cushion the impacts of shifts in the economy during an unprecedented time,” OSFI said in its letter. “While conditions seem stable now, the financial impacts of the Covid-19 pandemic are yet to be fully realized.”
However, OSFI said it may allow special dividends under certain circumstances.
Approval for special dividends will be determined on a case-by-case basis. In its letter, OSFI set out the principles that it will follow in making those decisions.
Those principles include that the individual institution’s capital and liquidity would remain strong if exposed to “severe but plausible scenarios” after the special dividend payment.
The letter also said the special dividend “should be non-recurring, limited to a specific business objective, and not for distributing capital to a broad group of shareholders.”
Firms wanting to pay special dividends must give OSFI at least 30 days notice.
“OSFI’s intention is to protect institutions’ creditors, depositors or policyholders while allowing institutions to compete and take reasonable risks,” the letter said.