On 28 July, the European Central Bank (ECB) extended their existing restrictions on banks to January 2021. As a issue, banks cannot pay dividends to shareholders, or work share buybacks, at the present time.
Why Is This Happening?
The ECB has imposed these measures inwards guild to aid the banks they regulate maintain capital letter reserves in addition to profitability during the acquaint economic crisis.
All ECB regulated banks are required to concur a minimum degree of financial reserves. There is business organisation nearly potential losses that banks may have to absorb on loans made to their customers. These losses would touch reserves. By not paying out dividends or buying dorsum shares, banks are instead maintaining this buffer.
The ECB farther land:
“The build-up of stiff majuscule too liquidity buffers since the final fiscal crisis has enabled banks during this crisis to proceed lending to households as well as businesses, together with thereby to aid stabilise the existent economy.”
The ECB besides confirmed that they still viewed the restrictions every bit “temporary together with particular“.
Will The Restrictions Be Lifted In Jan?
Unfortunately, no clear dates accept been set up for lifting the electric current rules. The restrictions volition be reviewed past the ECB inward the 4th quarter of 2020. At that betoken, the review volition accept into business relationship the economical environs, fiscal stability of the banking arrangement, together with how easy it is for banks to plan their capital letter reserve requirements.
The ECB did confirm the following: “Once the uncertainty… subsides, banks with sustainable uppercase positions may view resuming dividend payments.”
Bank Capital And Liquidity
The ECB stated they would provide banks alongside plenty time to ensure majuscule too liquidity reserves were built back upward, about likely the stop of 2021 going into 2022.
Bonuses To Staff
Additionally, the ECB requires banks to “live extremely moderate with view to variable remuneration payments.” In other words, cut down bonuses equally far every bit possible, defer payments, or pay non-monetary rewards instead (such equally shares).
For traders, the question volition be what sort of bear on this declaration may take, if any, on depository financial institution portion prices inwards the well-nigh hereafter.