ECB financial supervisor calls on banks to cut bonuses due to coronavirus
Banks should exercise “extreme moderation” on bonus payments this year, according to Europe’s top financial supervisor, who also threatened to intervene if lenders fail to show restraint.
Andrea Enria, chair of the European Central Bank supervisory board, said he hoped banks would limit payouts and avoid the need for the ECB to take action, but added: “If we have to play this role, so be it.”
“In the capital conservation mentality that we are trying to instil in banks, I think we will expect them to exercise extreme moderation on variable remuneration,” Enria said in an interview with the Financial Times.
His call for restraint represents an escalation in the central bank’s efforts to prepare the banking sector for what is expected to be the worst recession in decades, as the coronavirus outbreak and containment measures pummel the global economy.
While central bankers are confident the banking sector is in a better position to withstand a substantial economic shock than during the 2008 global financial crisis, they are urging banks to keep lending to households and businesses in a bid to limit the downturn.
Last week, the ECB urged eurozone banks to freeze dividends and share buybacks until at least October, suggesting that they should instead focus on using profits to support economies grappling with the outbreak.
It has also said lenders could eat into various capital and liquidity buffers in a bid to keep credit flowing, a move the central bank said would free up €120bn (£107) of capital, or around €1.8tn of extra lending capacity.
“Capital is conserved and buffers are released to increase the firepower of banks to provide lending to households and businesses,” Enria told the FT. “That is the main objective.”
Swiss banking regulator Finma today set out guidelines for easing lenders’ capital and liquidity requirements due to the outbreak, but said capital relief would be reduced for any new dividend payments made by banks.
Finma’s intervention comes a day after Swiss lender UBS said it would pay its 2019 dividend as planned, despite prior guidance from Swiss authorities for banks to limit payouts.
Some European lenders have already taken steps to limit bonuses due to the crisis. Spanish bank BBVA announced yesterday that its top managers would give up all variable pay this year “as a gesture of responsibility”.
Banks including ING, Rabobank, Commerzbank and Unicredit have also scrapped dividends following the ECB’s appeal last week.