PRA welcomed decisions by the boards of large UK banks to suspend dividends and buybacks on ordinary shares until the end of 2020 and to cancel payments of any outstanding 2019 dividends. PRA also expects banks not to pay any cash bonuses to senior staff, including all material risk takers, and is confident that bank boards are already considering and will take any appropriate actions with regard to the accrual, payment, and vesting of variable remuneration over the coming months. In this context, Sam Woods of PRA issued letters to CEOs of UK insurers and to the seven largest systemically important UK deposit-takers.
In the assessment of the Financial Policy Committee and PRA, the banks enter this period with strong capital positions, more than sufficient to accommodate the combined simultaneous impact of severe UK and global recessions and a financial markets shock—as demonstrated through their performance in the recent stress tests. Although the decisions will result in shareholders not receiving dividends, they are a sensible precautionary step given the unique role that banks need to play in supporting the wider economy through a period of economic disruption, alongside the extraordinary measures being taken by the authorities. PRA does not expect the capital preserved to be needed by the banks to maintain adequate capital positions; however, the extra headroom should help banks support the economy through 2020.
Keywords: Europe, UK, Banking, Insurance, Dividend Distribution, Remuneration, COVID-19, Stress Testing, Regulatory Capital, PRA
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