The Paris-based European Banking Authority (EBA) today, Tuesday evening, urged all European banks to temporarily suspend dividend payments and share buybacks. The EBA is thus following the European Central Bank (ECB), which on Friday evening had already recommended to major credit institutions it directly supervises to retain profits and reserves until at least 1 October 2020. EBA goes even further and calls on national bank supervisors to ask institutions to adopt prudent remuneration policies. This now also applies to all small and medium-sized institutions in the EU.
The suspension of payouts is intended to strengthen banks‘ capital so that they can bear any losses caused by the corona pandemic on their own. Despite the ECB’s recommendation, Süddeutsche Zeitung reports that Aareal Bank, Deutsche Pfandbriefbank and Commerzbank have not yet ruled out paying dividends for the past financial year.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
„The EBA statement is an important signal strengthening the European banking union. It is welcome that the EBA not only targets dividends and share buybacks, but also variable remuneration. Across Europe, banking supervisors must not allow banks to divert the recent capital relief into generous distributions. For fair competition in the single market, there must be no national differences in the application of restrictions on distributions. Europe must now stick together, and this also applies to banking supervision.
Giving shareholders a bonanza in the current crisis is not only short-sighted, but indecent. The fact that some banks are still considering paying out dividends contradicts the behaviour of an honest merchant. The longer the economic standstill caused by the Corona pandemic lasts, the higher the losses of the banks will be. Institutions that do not build up reserves now do not need to call for the state in a few months‘ time if things go wrong“.
Press release of the European Banking Authority (EBA) on dividends and the impact of COVID-19 on the European banking sector:
https://eba.europa.eu/eba-provides-additional-clarity-on-measures-mitigate-impact-covid-19-eu-banking-sector
Restrictions on distributions adopted by the ECB last Friday:
https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200327~d4d8f81a53.en.html