The ECB signals that it will not extend the ban on dividends to banks beyond the end of the year.

Extending the ban could lead to some «legal uncertainty», according to the Financial Times.

The European Central Bank (ECB) is signalling that it will not further extend the ban on dividend payments that it imposed on European banks in March. The veto will in principle end on 1 January and, according to this Wednesday’s Financial Times, everything points to this end date being maintained.

The euro-bank banned banks from paying dividends and buying back shares in March, at the start of the deep crisis caused by the coronavirus pandemic, as a means of converting some 30 billion euros of capital.

At the end of July it decided to extend the veto until the beginning of 2021, but even before that the European financial sector has been lobbying the monetary authority to end the ban. And it seems that there is little left for it to end.

Yves Mersch, Governor of the Central Bank of Luxembourg and Vice-President of the ECB’s Supervisory Board, has pointed to the «legal uncertainty» that a further extension of the ban would entail. «We only have [at the ECB] one enforcement tool in our regulation based on a case-by-case approach,» he told the Financial Times.

Therefore, the decision on the veto «would depend on the conservatism of internal models in banks, conservatism in provisioning and a sound view of a bank’s capital trajectory,» Mersch told the British newspaper.

«In other jurisdictions there also seems to be a move towards a case-by-case approach,» he said.

Thus, the Luxembourg central banker has argued that the ECB should be «very conservative» about «the pure resumption of payment ratios that we have seen before the crisis». «This does not mean that we needed to maintain a general ban in all cases», he qualified.

In fact, Yves Mersch warned the FT that «some [European] banks still use «very optimistic scenarios» in their internal models to determine how much capital they need.

Fuente: El Economista.