Guidance strengthened in line with latest calls for a freeze during the coronavirus pandemic from ECB © Bloomberg

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Europe’s banking regulator has demanded that all EU lenders stop their planned dividend payments and share buybacks — stepping up its guidance in line with the latest call for a payout freeze during the coronavirus pandemic by the European Central Bank.

In a series of statements issued late on Tuesday, the European Banking Authority said it now “urges all banks to refrain from dividends distribution or share buybacks which result in a capital distribution outside the banking system, in order to maintain its robust capitalisation”. In its previous guidance, on March 12, the regulator had said only that it “urged banks to follow prudent dividend and other distribution policies”.

Since then, the eurozone’s central bank has intervened, stating that banks in the bloc should not pay dividends for the financial years 2019 and 2020 until at least October. Its move was intended to increase banks capacity to absorb losses and support lending to households, small businesses and corporates affected by the coronavirus pandemic.

In addition, the EBA told national regulators to make banks review their remuneration policies — including bonus payments — to ensure they are “reflecting the current economic situation” as well as the banks’ own finances. In its guidance it said variable pay should be set at “a conservative level” with bonuses deferred for longer periods and with a larger proportion paid in shares. Restraint was necessary, the regulator said, “to achieve an appropriate alignment with risks stemming from the Covid-19 pandemic”.

Last Friday, Andrea Enria, chair of the ECB's supervisory board had argued that a contribution to the fight against coronavirus was required from both bankers and their shareholders — noting that up to €30bn of dividend payouts could instead be retained. 

On Tuesday, the EBA reinforced that message, stating that banks’ capital distributions “should serve the need to support the local and the broader European economies . . . particularly crucial in this time of crisis”.

It added that any banks believing they were legally required to go through with previously announced dividend payments or share buybacks should immediately consult their national regulators.

Lenders were also reminded that the loosening of capital buffers by regulators was solely intended help them finance their struggling corporate and retail customers — and not to increase the returns for shareholders. 

At the same time, the EBA provided additional guidance on how EU banks could be flexible in their supervisory reporting and emphasised the need to take measures to prevent money laundering and terrorist financing.

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