Goldman Sachs and Wells Fargo tumble after the Fed caps dividends and bans buybacks

• Bank stocks tumbled on Friday after the Federal Reserve capped dividends and banned stock buybacks until at least the end of the third quarter.
• Goldman Sachs and Wells Fargo were down more than 5%, while Bank of America, JPMorgan, and Citibank slid between 3.9% and 4.4%.
• The Fed rolled out the restrictions to preserve the banks' capital in case the coronavirus pandemic worsens.
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Bank stocks slumped on Friday after the Federal Reserve announced fresh restrictions on dividends and share buybacks on Thursday.

Goldman Sachs and Wells Fargo were down between 5% and 6.5% as of 10:18 a.m. ET. Bank of America and JPMorgan, Citigroup also dropped about 4%, while Morgan Stanley shares fell 3.2%. The S&P 500 was down 1.5%.

The Fed banned banks from repurchasing shares until at least the end of next quarter, and capped third-quarter dividends at the amount paid out in the second quarter. It also introduced a formula for dividend payouts based on banks' income.

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The central bank rolled out the limits after its annual stress test found some banks would approach their minimum capital requirements if the coronavirus pandemic worsens. It will also require banks to resubmit and update their capital plans later this year to reflect current stresses.

America's biggest banks have already suspended buybacks since March, and limits on their dividend payments have been a hot topic in recent weeks, meaning the Fed's moves weren't a complete surprise.

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However, investors such as Warren Buffett are still unlikely to welcome slimmer dividends and delayed buybacks.

Buffett's Berkshire Hathaway conglomerate counts Bank of America, Wells Fargo, and JPMorgan among its 10 largest holdings, and still owns a $300 million stake in Goldman Sachs after selling most of the position in the first quarter.