The European Banking Supervision (SSM) has temporarily banned the distribution of dividends and share buybacks by the 120 largest banks in the euro zone in an emergency meeting today. The Supervisory Board has decided that the banks directly supervised by the ECB will have to postpone decisions on the distribution of profits until October at the annual general meetings now scheduled for spring. The SSM is thus the first supervisory authority to impose binding restrictions. At the beginning of this week, the German financial supervisory authority BaFin had merely recommended that the banks refrain from share buybacks and think twice before paying dividends and bonuses. Due to the Corona Pandemic, numerous companies and private households are expected to file for insolvency in the coming weeks. The banks will then have to write off loans granted, which will reduce their equity capital.
As recently as 20th March the SSM had adopted capital relief measures of around 120 billion euros, urging banks to “use the positive effects of these measures to support the economy and not to increase dividend payments or variable remuneration”. Nevertheless, several financial institutions had signalled that they wanted to stick to dividend payments. In response, I had publicly and in the European Parliament called for banks to be banned from paying dividends and buying back their own shares for the time being.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
“The ECB’s decision is correct and necessary. Now is not the right time for banks to cuddle their shareholders or to support their share prices. The ECB’s order should prompt all national banking supervisors to also impose a strict dividend freeze. National supervisors are now called upon to ensure shared decency and fair competition with binding rules also in the area of dividends. It is highly welcome that Europe is acting consistently, where national banking supervisory authorities are still handling banks with kid gloves.
Across Europe, banking supervisors must not allow banks to divert the latest capital requirement reductions into generous dividends. While the European real economy is being put in the freezer, financial institutions must also pursue a prudent dividend policy. In this critical situation, taxpayers’ money should support our health systems and the real economy, not have to bail out banks that have been negligent again. It is only a matter of time before the corona pandemic reaches bank balance sheets, and then the institutions will need every euro in reserves. As soon as the bonus season approaches in autumn, a restriction of excessive bonuses must also be considered.
Today I am pleased that green demands have so quickly become reality throughout Europe.”
My call for a dividend ban:
Restrictions on distributions adopted by the ECB today:
Bank relief decided by the ECB on 20 March 2020: