ECB’s de Guindos: ‘Banks Should Maintain a Prudent Approach to Dividend Payouts’
2 August 2023
By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Wednesday said that despite the generally positive conclusions of the latest banking system stress test, Europe's banks should be conservative when it comes to dividends.
In a blog post on the website of the ECB, de Guindos said that the European banking sector was ‘in reasonably good shape’ and ‘would be strong enough to withstand a severe economic downturn’, as confirmed by the stress test.
Even under an adverse scenario of persistently elevated inflation, tighter monetary policy and a severe recession, ‘most banks continue to meet their minimum capital requirements’, he observed.
De Guindos urged that macroprudential policy under the baseline scenario ‘focus on preserving banking sector resilience.’
‘We should ensure that existing macroprudential capital buffers are not released’, he said. ‘Targeted increases in capital buffers could still be considered in certain countries with vulnerabilities, as long as the risk of procyclicality remains low.’
The fact that certain national banking systems would face ‘material widespread losses’ under the adverse scenario was ‘relevant information’, he said.
‘From a financial stability perspective, capital should not flow out of the system, and banks should maintain a prudent approach to dividend payouts’, he continued.
If the adverse scenario materialised, ‘[t]he buffers built up since the pandemic could be released, which would help banks to absorb losses while still providing key services to the economy’, he said.