It's official: Bank dividends are back. And their return could put billions of dollars into the pockets of regular investors.

On Friday, some of the nation's largest banks -- including Minneapolis-based U.S. Bancorp, Wells Fargo & Co. and J.P. Morgan Chase -- raised their stock dividends dramatically, after slashing them to conserve cash two years ago amid the worst financial crisis since the 1930s.

The dividend increases are a sign of stronger balance sheets for big banks, which were severely weakened by losses related to crumbling real estate values. Big banks were in such dire shape two years ago that the U.S. Treasury injected hundreds of billions of dollars into the financial system to shore up confidence.

U.S. Bancorp and Wells Fargo cut dividends by more than 80 percent in early 2009 as large banks slashed payouts to investors at a pace not seen in more than five decades.

After stockpiling profits for two years, big banks got the green light Friday from the Federal Reserve to proceed with limited dividends and share buybacks. The Fed said a $300 billion increase in common equity at the nation's 19 largest bank holding companies in 2009 and 2010 marked a "significant improvement" in their capital positions.

U.S. Bancorp said it will increase its quarterly dividend 150 percent to 12.5 cents per common share from 5 cents a share, payable to shareholders on April 15. Wells Fargo, Minnesota's largest bank by deposits, said it will make a special dividend of 7 cents a share, bringing its first-quarter dividend to 12 cents. Both banks also announced significant share buybacks.

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Richard Davis, chief executive of U.S. Bancorp

Though the payouts are not as generous as before the recession, the extra cash will be a relief to investors such as retirees who counted on generous dividends.

"It's been a very long wait, but investors' patience has finally paid off," said Jaime Peters, a bank analyst at Morningstar.

The Fed authorized the dividend hikes after concluding that big banks have the ability to absorb losses under negative economic scenarios.

But critics of the decision said the Fed's minimum capital ratios still are not high enough, and do not reflect the actual risk on bank balance sheets. They argue that large banks need more capital to withstand another global financial crisis and hold too many bad loans tied to real estate that have yet to be written down for losses.

"This is a very, very bad idea," said John Boyd, a finance professor at the University of Minnesota's Carlson School of Business. "The profits that banks are making now are substantially ephemeral because they are carrying a lot of real estate assets at inflated values."

Ravi Jagganathan a finance professor at Northwestern University's Kellogg School of Management, said regulators have yet to address the "too big to fail" problem, in which giant financial institutions are prone to take greater risks because the government will protect them against failure.

"The dividend increases are a non-event," said Jagganathan. "The bigger issue is whether we are preventing these banks from doing the things that got us into this mess to begin with."

In a sign of caution, the Fed said banks are expected to limit dividend payouts to 30 percent of their anticipated earnings in 2011. That's substantially less than before the recession, when some large banks distributed 50 percent or more of their profits to shareholders through dividends. The Fed also said it expects banks to continue to increase their capital levels.

Bank shares rallied on the dividend announcements. U.S. Bancorp's stock rose 30 cents Friday, or 1.1 percent, to $26.65 a share. Wells Fargo's stock rose 47 cents, or 1.5 percent, to $31.83 a share.

"Raising the dividend has been a top priority for me, personally, our board of directors and senior management team for more than a year," said Richard Davis, U.S. Bancorp CEO and chairman, in a written statement. "Our ability to increase the dividend and announce this new repurchase authorization Friday reaffirms the company's strong capital position."

Bank of America and Citigroup, which have struggled to rebound from huge loan losses, did not announce dividend increases Friday.

Chris Serres • 612-673-4308