Supervisory policy stimulus: evidence from the euro area dividend recommendation

Ernest Dautović, Leonardo Gambacorta and Alessio Reghezza ()

No 2796, Working Paper Series from European Central Bank

Abstract: At the onset of the Covid-19 outbreak, central banks and supervisors introduced dividend restrictions as a new policy instrument aimed at supporting lending to the real economy and strengthening banks’ capacity to absorb losses. In this paper we estimate the impact of the ECB’s dividend recommendation on bank lending and risk-taking. To address identification issues, we rely on credit registry data and a direct measure that captures variation in compliance with the recommendation across banks in the euro area. The analysis disentangles the confounding effects stemming from the wide range of monetary and fiscal policies that supported credit during the Covid-19 downturn and investigates their interaction with the dividend recommendation. We find that dividend restrictions have been an effective policy in supporting financially constrained firms, adding capital space to banks, and limiting procyclical behaviour. The effects on lending are larger for small and medium enterprises and for firms operating in Covid-19 vulnerable sectors. At the same time, we do not find evidence of a significant increase in lending to riskier borrowers and ”zombie” firms. JEL Classification: E5, E51, G18, G21

Keywords: Covid-19; credit supply; dividend restrictions; European Central Bank; supervisory policy (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-des, nep-eec, nep-fdg, nep-mac and nep-mon
Note: 2777855
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Supervisory policy stimulus: evidence from the euro area dividend recommendation (2023)
Working Paper: Supervisory Policy Stimulus: Evidence from the Euro Area Dividend Recommendation (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20232796

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