On 28 July 2020 the European Central Bank (ECB) extended its recommendation to banks not to pay dividends and not to buy back shares until January 2021. The ECB also asks banks to exercise extreme moderation on variable remuneration in order to conserve capital during the coronavirus pandemic. The recommendations of the ECB are set out to help banks absorb losses and support lending throughout the crisis. The ECB also clarifies expected pace for banks to restore capital and liquidity positions. The recommendations will be reviewed by the ECB in the fourth quarter of 2020, taking into account the economic situation and the stability of the financial system and the reliability of capital planning.
Subsequent to the exceptional recommendation, banks with sustainable capital positions may consider resuming dividend payments. The ECB issued a letter to the banks asking them to comply with the recommendation e.g. by reducing the overall amount of variable pay. Where it is not possible, banks should defer a larger part of the payments. As usual, the ECB will continue to assess the remuneration policies of the banks as part of its Supervisory Review and Evaluation Process (SREP), in particular the impact that such policies may have on the ability of a bank to maintain a sound capital base.