Banks’ capital distributions and implications for monetary policy

Cyril Couaillier, Maria Dimou and Conor Parle

Economic Bulletin Boxes, 2023, vol. 6

Abstract: Banks distribute capital to equity investors either by paying dividends or by buying back shares. Such distributions of capital have ambiguous implications for monetary policy, since these lower banks’ cost of equity by signalling their soundness to investors but also reduce banks’ capital ratios and thus potentially their intermediation capacity. Since the end of the pandemic and the end of ECB Banking Supervision’s recommendation to refrain from or limit payouts, banks in the euro area have distributed capital at a rapid pace. Such distributions have been spearheaded by ambitious buyback programmes, catching up on forgone distributions in previous years, while a further increase in dividends is also likely. Payouts vary greatly across banks in terms of both overall size and composition. Individual banks tend to distribute more capital when they are more profitable and have better asset quality, capital ratios above their announced targets and more liquidity. They also tend to spread distributions over several years. We find that recent payouts have had a positive signalling effect on financial markets. Higher payout commitments have also been associated with lower bank credit supply and higher lending rates, therefore possibly contributing to the transmission of the ECB’s monetary policy tightening impulse so far. JEL Classification: E51, E52, G21, G35

Keywords: credit; dividends; monetary policy; payouts (search for similar items in EconPapers)
Date: 2023-09
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//press/economic-bulletin ... 7~526229cbee.en.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbbox:2023:0006:7

Access Statistics for this article

More articles in Economic Bulletin Boxes from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().