In a statement released on Tuesday 28 July, the european central Bank has asked banks in the euro zone not to distribute dividends or to buy back own shares until January to tackle the health crisis. The institution extends for a total of three months this recommendation “temporary and exceptional” which aims to ” preserve the ability of banks to absorb losses and sustain the economy in this environment is particularly uncertain “, originally issued in march.
It has also asked the banks to be “extremely moderate” in the payment of bonuses, ” for example by reducing the amount of variable part of salaries “, adds the ECB. “The constitution of reserves, robust capital since the last financial crisis has allowed banks to continue to lend to households and businesses and it is all the more important to encourage the banks to use their capital to concentrate on this primary task of lending,” explains the president of the banking supervisor, the Italian Andrea Enria. The ECB will reassess in the fourth quarter, ” the need to extend or not these recommendations.
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“The european banking sector can resist”
generally, “the european banking sector can resist” the crisis, but to a deterioration of the situation would lead to a “significant decrease in the capital of banks “require” additional measures ” on the part of the States, explains the ECB in a press release simultaneous separate. Following the recommendations of the march, the largest banks of the euro area have declined to pay 27.5 billion euros in dividends in respect of fiscal year 2019, according to a study by the ECB, published at the end of may.
Between march and may, the european economy has suffered the full force of the shock of the pandemic coronavirus, which has paralyzed the production and restrained consumption in many countries. The ECB, the mistress of the monetary policy of the euro area, has launched a programme of unprecedented emergency of eur 1.35 billion to support the economy in the euro zone. Regarding banks, to ensure their ability to support the economy by lending, the institution based in Frankfurt has also alleviated temporarily the capital requirements and measures for high-risk loans.
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