Evaluating the benefits of euro area dividend distribution recommendations on lending and provisioning

Ernest Dautović, Aurea Marques, Alessio Reghezza (), Rodriguez d’Acri, Costanza, Diego Vila Martín and Nadya Wildmann

Macroprudential Bulletin, 2021, vol. 13

Abstract: This article studies the impact of the ECB’s dividend recommendations on banks’ lending and loss-absorption capacity during the COVID-19 crisis. It finds that the policy has been effective in mitigating the potential procyclical adjustment of banks. Banks that did not distribute previously planned dividends increased their lending by around 2.4% and their provisions by approximately 5.5%, thus strengthening their capacity to absorb losses. Notably, the recommendations appear to have mitigated the procyclical behaviour of banks closer to the threshold for automatic restrictions on distributions. Overall, the recommendations were successful in conserving capital and helping the banking system support the real economy and facilitate the recognition of future losses. JEL Classification: E51, E58, G21, G35, G28

Keywords: banks; capital buffers; Covid-19 crisis; Dividend recommendations; lending; loss-absorption; risk-taking (search for similar items in EconPapers)
Date: 2021-06
Note: 2777855
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbmbu:2021:0013:2

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