Featured Product

    FSI Examines Jurisdictional Dividend Distribution Policies for Banks

    May 06, 2020

    FSI published a brief note that describes how regulatory distribution constraints operate under Basel III and discusses how that standard has been applied in some jurisdictions. The note takes stock of recent supervisory actions aimed at capital conservation and discusses how they differ across a sample of 14 jurisdictions. The note highlights that most authorities have undertaken initiatives in relation to banks’ distribution policies but practices across jurisdictions diverge markedly regarding scope and stringency.

    Many authorities have restricted capital distribution by banks in their jurisdictions. However, not all important financial centers have issued concrete public guidance regarding this. Moreover, among those that have taken public action, the scope, severity, and duration of the measures differ, making the conservation measures somewhat incomparable across countries. These differing dimensions include the following aspects:

    • Measures differ in their scope. Some jurisdictions have undertaken initiatives that capture all types of distribution, including dividends, share buybacks, and bonuses. Others apply different regimes to dividends and share buybacks. Most jurisdictions have not restricted bonuses.
    • The degree to which authorities restrict distributions differs. In some jurisdictions no distributions at all will be paid in 2020, while in others authorities have issued high-level recommendations not to increase distributions.
    • Authorities’ measures differ in terms of the period of time for which they will apply. Some authorities have specified a fixed period, even if only tentatively, while others have taken more open-ended measures that apply until they are alleviated or removed. Moreover, the fixed periods of application differ in length, with the minimum extending until mid-2020. UK is the only jurisdiction in which restrictions apply retroactively by cancelling outstanding 2019 dividends, albeit with regard to only the seven largest systemically important UK banks.
    • Given the extreme market sensitivity, some authorities may have preferred to make specific and targeted recommendations to the institutions as part of their regular supervisory dialog rather than to publicly issue general restrictions.

    The note emphasizes that regulatory actions in the current circumstances need to focus on preserving banks’ lending activity without jeopardizing their solvency. This means that flexibility in capital requirements, including through the use of regulatory buffers, and capital conservation should go hand in hand. Basel III provides for automatic distribution constraints when capital falls below specific thresholds. In the current context, this may disincentivize firms from following authorities’ recommendations to use capital buffers. The note concludes that blanket distribution restrictions imposed through supervisory action may help address these disincentives to the extent that they are not linked to firms’ individual capital positions and thus remove any possible stigma effect. 

     

    Related Link: Brief on Dividend Distribution

    Keywords: International, Banking, COVID-19, Basel III, Dividend Distribution, Regulatory Capital, Capital Buffers, FSI

    Featured Experts
    Related Articles
    News

    EC Rule on Contractual Recognition of Write Down and Conversion Powers

    The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.

    September 17, 2021 WebPage Regulatory News
    News

    APRA Issues Further Guidance on Application of Securitization Standard

    The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.

    September 16, 2021 WebPage Regulatory News
    News

    SRB Provides Update on Approach to Prior Permissions Regime

    The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.

    September 16, 2021 WebPage Regulatory News
    News

    APRA Publishes FAQs on Capital Treatment of Overseas Subsidiaries

    The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.

    September 15, 2021 WebPage Regulatory News
    News

    EBA Finalizes Guidance to Assess Breaches of Large Exposure Limits

    The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.

    September 15, 2021 WebPage Regulatory News
    News

    PRA Finalizes Changes to Consolidated Prudential Rules Under CRD5/CRR2

    The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.

    September 15, 2021 WebPage Regulatory News
    News

    EBA Revises Guidelines on Stress Tests of Deposit Guarantee Schemes

    The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).

    September 15, 2021 WebPage Regulatory News
    News

    Nordea Bank and EIB Sign Agreement to Fund Green Projects in Nordics

    The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.

    September 15, 2021 WebPage Regulatory News
    News

    HKMA Endorses Industry Guidance to Support LIBOR Transition

    The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).

    September 14, 2021 WebPage Regulatory News
    News

    OCC Issues Booklet on Supervision of Problem Banks

    The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.

    September 13, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7481