In a press release published Tuesday, July 28, the European Central Bank asked euro area banks not to distribute dividends or buy back own shares until January to face the health crisis. The institution is thus extending by three months this “temporary and exceptional” recommendation which aims to “preserve the capacity of banks to absorb losses and support the economy in this particularly uncertain environment”, initially issued in March.
She also asked the banks to be “extremely moderate” in the payment of bonuses, “for example by reducing the sum of the variable part of salaries,” adds the ECB. “The building up of robust capital reserves since the last financial crisis has enabled banks to continue lending to businesses and households and it is all the more important to encourage banks to use their capital to focus on this main task of lend ”, explains the president of the banking supervisor, the Italian Andrea Enria. The ECB will reassess “in the fourth quarter” whether or not these recommendations should be extended.
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“The European banking sector can resist”
In general, “the European banking sector can withstand” the crisis, but a deterioration of the situation would lead to a “significant decrease in the capital of banks” requiring “additional measures” on the part of States, explains the ECB in a press release. simultaneous distinct. Following March’s recommendations, the biggest banks in the euro zone have given up paying 27.5 billion euros in dividends for fiscal year 2019, according to an ECB study published at the end of May.
Between March and May, the European economy was hit hard by the shock of the coronavirus pandemic, which paralyzed production and curbed consumption in many countries. The ECB, master of monetary policy in the euro area, has launched an unprecedented emergency program of 1.35 billion euros to support the economy in the euro area. Regarding banks, to ensure their ability to support the economy by lending, the Frankfurt-based institution has also temporarily eased equity requirements and measures on subprime loans.
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