Featured Product

    EBA and ECB Recommend Prudent Distribution and Remuneration Policies

    December 15, 2020

    In response to the continuing COVID-19 crisis, EBA and ECB have updated their guidance on capital distribution and variable remuneration policies of banks. Both EBA and ECB recommend that banks should continue to apply conservative approach on dividends and other distribution policies, including share buybacks. ECB has asked all banks to consider not distributing cash dividends or conducting share buybacks, or to limit such distributions, until September 30, 2021. In addition, ECB recommended that banks should adopt extreme moderation on variable remuneration until September 30, 2021. ECB also updated the frequently asked questions (FAQs) on supervisory measures in response to COVID-19 pandemic to reflect this updated guidance.

    As per the revised recommendation, ECB expects dividends and share buybacks to remain below 15% of the cumulated profit for 2019-20 and not higher than 20 basis points of the Common Equity Tier 1 ratio, whichever is lower. Banks that intend to pay dividends or buy back shares need to be profitable and have robust capital trajectories. They are expected to contact their Joint Supervisory Team to discuss whether the level of intended distribution is prudent. Banks should refrain from distributing interim dividends out of their 2021 profits. Post September 2021, in the absence of materially adverse developments, ECB intends to repeal the recommendation and return to assessing banks’ capital and distribution plans based on the outcome of the normal supervisory cycle. This recent recommendation replaces the March 2020 ECB recommendation that called for a temporary suspension of all cash dividends and share buybacks. ECB also recommends that national supervisors should apply the same approach to less significant banks under their direct supervision, as appropriate. 

    Furthermore, ECB specifies that, to achieve an appropriate alignment with risks stemming from the COVID-19 pandemic, a larger part of the variable remuneration of material risk-takers should be deferred for a longer period and a larger proportion should be paid out in instruments. Competent authorities should continue to monitor banks’ remuneration policies, to ensure that they are consistent with an effective risk management and long-term interest of a bank. ECB highlighted that the appropriateness of institutions’ remuneration policies and practices will form part of the supervisory assessment within the 2021 Supervisory Review and Evaluation Process. 

     

    Related Links

    Keywords: Europe, EU, Banking, COVID-19, Dividend Distribution, Share Buybacks, Remuneration, FAQ, Regulatory Capital, Basel, EBA, ECB

    Featured Experts
    Related Articles
    News

    EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    MAS Amends Notice on Related Party Transactions of Banks

    MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.

    April 08, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Euro Short-Term Rate

    ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.

    April 07, 2021 WebPage Regulatory News
    News

    EBA Consults on Standards Related to FRTB-SA

    EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).

    April 07, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules Related to IRB Approach for Credit Risk

    PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.

    April 07, 2021 WebPage Regulatory News
    News

    BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK

    The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks

    FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks

    OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.

    April 06, 2021 WebPage Regulatory News
    News

    EU Amends CRR and Securitization Regulation in Response to Pandemic

    To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).

    April 06, 2021 WebPage Regulatory News
    News

    HM Treasury Announces G7 Agreement on Green Agenda Ahead of COP26

    HM Treasury announced that G7 Finance Ministers and Central Bank Governors met ahead of COP 26, the 2021 UN Climate Change Conference, and agreed on green agenda.

    April 06, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6821