Once again, the European Central Bank (ECB) intervened early on dividends out of concern for the stability of the financial system. “We will propose that banks recalculate their capital trajectories under a less favorable scenario, which also includes a possible gas embargo or recession,” said Andrea Enria, head of the ECB’s supervisory board. The supervisor will also take this information into account when reviewing the banks’ distribution plans. Already after the outbreak of the corona pandemic, the supervisors had restricted the distribution of dividends at major banks.
Russia’s invasion of Ukraine has clouded prospects for European banks. Most notably, there is a risk of an increase in non-performing loans due to inflation and commodity supply problems. At the beginning of the year, the institutes had promised to pay out billions of euros in excess capital through dividends and share buybacks.
The ECB committee will discuss this next week
Enria had previously said the ECB had asked banks to be more cautious about capital planning. The topic will be discussed next week in the central bank’s supervisory body, he said on Thursday before the European Parliament in Brussels.
The ECB is walking a fine line on the issue. A de facto ban on payouts at the start of the pandemic caused bank stocks to plummet and led to harsh criticism of supervisors. At the same time, a number of banks were happy about the measure because they were relieved of the pressure to pay dividends in the face of competition. Enria has defended these measures, but has firmly opposed proposals to expand the authorities’ powers to restrict dividends and buybacks. (eml/Bloomberg)