The European Central Bank (ECB) on Tuesday extended a recommendation to banks in the euro zone not to pay dividends and not to buy back shares until January, 2021.
The ECB also asked banks to be “extremely moderate with regard to variable remuneration” and clarified that it will give enough time for banks to replenish their capital and liquidity buffers to help them cope with the coronavirus crisis.
The central bank said its updated recommendation on dividend distributions remains temporary and exceptional and is aimed at preserving banks’ capacity to absorb losses and support the economy.
The ECB said it will review whether the ban remains necessary in the fourth quarter of 2020, taking into account the economic environment, the stability of the financial system and the reliability of capital planning.
Andrea Enria, chair of the ECB Supervisory Board, said: “The build-up of strong capital and liquidity buffers since the last financial crisis has enabled banks during this crisis to continue lending to households and businesses, and thereby to help stabilise the real economy.
“Therefore it is all the more important to encourage banks to use their capital and liquidity buffers now to continue focusing on this overarching task: lending, whilst of course maintaining sound underwriting standards.
“Meanwhile, and to support banks with their planning, we are signalling a gradual return to normal.”