Restriction for bank capital remuneration in the Pandemic: A Lesson for the Future or an Outright Extraordinary Measure?

Since the outbreak of the COVID-19 pandemic, a number of different approaches and pressures have been brought to bear on companies aimed at discouraging, and even prohibiting, dividends distribution and shares buyback. Together with monetary and fiscal policy interventions, regulatory and supervisory actions have been aimed at mitigating the impact of the pandemic on bank lending capacity. To that end, banks were asked to use capital buffers to absorb losses and, in addition, were granted capital relief in various forms. Against this background, with regard to banks operating in the EU financial sector, the pressure to avoid dividends distribution and shares buy-back has been advanced as of March 2020 by several authorities, that, even with no formal introduction of a legal ban, expressly encouraged banks to suspend at least temporarily any distributions to shareholders or recommended careful attention in doing so. As the deadline for the extension of the various limitations approaches, also in view of the stabilisation of the economic forecasts following the pandemic, a debate is underway as to whether such restrictions on shareholders’ distributions should be maintained, revised or repealed.