The European Central Bank on Tuesday asked eurozone banks to extend a moratorium on paying dividends and to continue limiting executive bonuses. Lenders need to keep the money on hand in case the economic effects of the pandemic prove to be worse than expected, the bank said.
The recommended ban on payouts was scheduled to expire in October, but the central bank said Tuesday that they should not issue dividends until January at the earliest in order to preserve their capital. Banks should also exercise “extreme moderation” in bonus payments, the central bank said.
The moratorium, which has been met with some grumbling by bankers, is not mandatory. But few lenders are likely to defy the central bank, which has ultimate responsibility for supervising them.
Andrea Enria, the central bank official responsible for bank supervision, said that banks have withstood the pandemic fairly well so far, but that some could run short of capital if the impact of the pandemic fulfills worst-case scenarios.
“We prefer to be prudent today rather than having regrets tomorrow should overall economic conditions deteriorate further,” Mr. Enria said on the central bank’s blog.