The European Central Bank plans to ask major banks to review their dividend plans amid the risk of a recession if Russian gas supplies are cut, banking watchdog Andrea Enria said on Thursday.
“We would suggest asking banks to recalculate their capital trajectories in the worst-case scenario, which could include a gas embargo or recession.Andrea Enria said during the hearing of the Economic Affairs Committee of the European Parliament. This recalculation will servecheck out their dividend distribution plansadded the Italian central banker. Russia’s war in Ukraine has pushed up energy and food prices, and fears are mounting about the risk of a recession if Russian gas supplies are cut off entirely.
While eurozone banks have fairly strong capital buffers thanks to reforms implemented after the Great Financial Crisis of 2008, the ECB wants to ensure that these institutions are reliable in predicting their payouts, whether through dividends or other measures affecting their capital. Paying dividends to shareholders is one lever, among others, to control the amount of capital on the balance sheet that banks must maintain in sufficient quantities to absorb any shocks.
The subject will be discussed next week at the meeting of the supervisory board of the banking supervisor within the framework of the ECB, Andrea Enria said. The ECB already imposed a blanket ban on dividend payments to shareholders in March 2020, during the first wave of the Covid-19 pandemic, and then imposed an outright cap on those payments in December of the same year. The scheme has not been renewed since September last year.
Source: Le Figaro
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