ECB Publishes Recommendation on Dividend Distribution Policies
ECB published a recommendation on the dividend distribution policies (ECB/2019/1) for credit institutions. Credit institutions should establish dividend policies using conservative and prudent assumptions, after any distribution, to satisfy the applicable capital requirements and the outcomes of the supervisory review and evaluation process (SREP).
With regard to credit institutions paying dividends in 2019 for the financial year 2018, ECB recommends the following:
- Category 1. Credit institutions that satisfy the applicable capital requirements and have already reached their fully loaded ratios, as applicable, as at December 31, 2018 should distribute their net profits in dividends in a conservative manner to enable them to continue to fulfill all requirements and outcomes of the SREP, even in the case of deteriorated economic and financial conditions.
- Category 2. Credit institutions that satisfy the applicable capital requirements as at December 31, 2018, but have not reached their fully loaded ratios as, as applicable, as at December 31, 2018 should distribute their net profits in dividends in a conservative manner to enable them to continue to fulfil all requirements and outcomes of SREP, even in case of deteriorated economic and financial conditions. Furthermore, they should, in principle, only pay out dividends to the extent that paragraph 1(d) of (ECB/2019/1) is also fulfilled and, at a minimum, a linear path toward the required fully loaded capital requirements—as referred to in paragraph 1(e) of (ECB/2019/1) and outcomes of the SREP—is secured.
- Category 3. Credit institutions in breach of the requirements referred to in paragraph 1(a), (b) or (c) of (ECB/2019/1) should in principle not distribute any dividend.
Credit institutions that are not able to comply with this recommendation because they consider themselves legally required to pay out dividends should immediately contact their joint supervisory team. Credit institutions in categories 1, 2, and 3 are also expected to meet Pillar 2 guidance. If a credit institution operates or expects to operate below Pillar 2 guidance, it should immediately contact its joint supervisory team. ECB will review the reasons why the credit institution’s capital level has fallen, or is expected to fall, and will consider taking appropriate and proportionate institution-specific measures. In their dividend policy and capital management, institutions are also expected to take into account the potential impact on capital demand due to future changes in the EU’s legal, regulatory, and accounting frameworks. In the absence of specific information to the contrary, the future Pillar 2 requirements and Pillar 2 guidance used in capital planning are expected to be at least as high as the current levels.
Related Link: Recommendation (PDF)
Keywords: Europe, EU, Banking, Securities, Dividend Distribution, Capital Requirements, CET1, SREP, CRR, Pillar 2, ECB/2019/1, ECB
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.