ECB stick and carrot to banks
ECB analyzes, suggestions and criticisms of banks. All the details that emerge from the newsletter of the European Central Bank
ECB stick and carrot to banks. Here's how and why. All the details.
With the tightening on dividend payments imposed by the ECB to tackle the pandemic, banks retained 28 billion in the balance sheet in 2020 and distributed around 10 billion in profits in the first months of 2021, about a third of the dividends of a normal year. This allowed the banks involved "to increase provisions by 5.5% and loans to the real economy by 2.4%" compared to banks that did not alter the dividend distribution plans. The banking supervision of the ECB writes this in an article in the usual newsletter that cites the analyzes of some economists. "The analyzes – reads the article – indicate that the ECB policy on dividends was effective".
The ECB also defends the decision to relax the restrictions on the distribution of dividends, in light of the improved macroeconomic outlook and the requirements for managing risks and prompt recognition of signs of deterioration in asset quality: elements that will be considered in the assessment of the capitalization of banks and in the supervisory dialogue with credit institutions before they define dividend distribution plans in the fourth quarter of 2021.
Not only carrot but also ECB stick for credit institutions. Some banks "need to improve their overall resilience" in the face of negative shocks with more credible capital strengthening options, and the issue will be at the center of the 2021-2022 'recovery plan' evaluation cycle, the outcomes of which will affect the subsequent supervisory approach. This is what we read in an article in the newsletter of the ECB Banking Supervision, which "considers these improvements essential" and warns that the Joint Supervisory Teams "are discussing what is feasible, on the basis of cost-benefit analyzes, for banks that report a low overall resilience ". According to the article, which follows the crisis preparedness assessments announced in the February 2021 newsletter, "most banks have somewhat overestimated their overall resilience." Furthermore, for 25% of the options to increase capital or to sell assets hypothesized by the banks and analyzed by the ECB, "the implementation times indicated are too short".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/bastone-e-carota-della-bce-alle-banche/ on Wed, 18 Aug 2021 10:43:48 +0000.