Swift action by regulators prevented big euro zone lenders from paying about 30 billion euros to shareholders out of 2019 earnings, according to a March Breakingviews analysis. The emergency measures were necessary as national lockdowns starved firms of cash just as credit markets seized up. Supervisors also worried that rampant loan losses could blow a hole in banks’ capital buffers.
Seven months on, these fears have receded. The initial surge in demand for bank credit was fleeting. Bond markets quickly reopened for big companies, supported by generous monetary easing from central banks. Non-financial firms in the euro zone issued 119 billion euros of debt securities in April, ECB data shows, close to double the monthly average over the previous year. UK capital markets were similarly buoyant.
Bank earnings and capital also held up better than feared. NatWest, for example, on Friday reported a chunky 18.2% common equity Tier 1 capital ratio, even though the state-controlled British lender has taken hefty bad-debt provisions this year. That trend should continue.
Enria and Woods can therefore afford to drop their blanket dividend ban. However, they should still attach a few conditions. One precaution would be to restrict payouts for lenders whose CET1 ratio is less than 2 percentage points above the regulatory minimum. That’s a rule of thumb that most bank CEOs follow informally anyway.
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