Europe’s Dividend Ban Was in Banks’ Interest, Borio Says

European regulators’ de facto ban on dividends was ultimately in banks’ interest as it was aimed at helping economies more broadly, according to Claudio Borio at the Bank for International Settlements.

As financial institutions across Europe await a decision on dividends in 2021, the head of the BIS’s Monetary and Economic Department said there’s more at stake than short-term payouts to investors.

“Shareholders may not be very pleased, but you have to take a broader perspective,” Borio said. “If banks were to have more serious problems, that’s bad for shareholders.”

The recommendation to curb dividends was implemented after regulators responded early in the coronavirus crisis with measures to help lenders. Borio said making sure banks have more resources for lending helps credit, economic growth and the cost of funding, which ultimately benefits financial institutions.

The dividend recommendation will only be temporary, but regulators have yet to make a formal decision on 2021.

“Everything will depend on the evolution of the pandemic,” Borio said.

He was speaking at the publication of the BIS Quarterly Review, which noted the gap between risky asset valuations and uncertain economic prospects.

He said part of this is being driven by exceptionally loose monetary policy. Central banks, which must support their economies, face a “delicate trade off.”

©2020 Bloomberg L.P.

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