Fed to Bank of America: No Bigger Dividends

The Fed has rejected Bank of America's bid to modestly increase its dividend.  The problem isn't the loss of the dividend itself, of course--even major investors aren't really going to miss a cent a share.  Rather, the problem is what this heralds for Bank of America's financial condition.  Other banks have been allowed to increase their dividends, which suggests that the Fed thinks BofA is still unusually weak.

The only bright spot I've seen suggested--and it's not really all that cheering--is that the Fed may be feeling more freedom to turn down requests like this.  For a long time, the Fed has been doing an elaborate dance where it tries to simultaneously rein in the banks, and shore up the weakest ones, without ever signaling the market which ones are in the deepest trouble.  Such a signal, it's feared, could touch off renewed convulsions in the markets.

Well, there was a minor convulsion in BofA stock--it dropped about 3%--but the market overall doesn't seem all that panicky.  The economy has rebounded to the point where we no longer have to worry so much about contagion--and that means that the Fed can get a little tougher on those it regulates.