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Bank dividend policy – ECB recommendation

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Bank dividend policy – ECB recommendation

 

SUMMARY OF:

Recommendation of the European Central Bank on dividend distribution policies (ECB/2015/49)

WHAT IS THE AIM OF THIS RECOMMENDATION?

This is a recommendation from the European Central Bank (ECB) on bank dividend policy. It aims to ensure that banks are able to meet capital requirements after paying out dividends.

KEY POINTS

Banks should adopt a conservative and prudent dividend policy. This is to ensure they can meet the applicable capital requirements after paying out dividends.

The capital requirements are:

  • Pillar 1 requirements (minimum requirements): Common Equity Tier 1 capital ratio of 4.5%, Tier 1 capital ratio of 6% and a total capital ratio of 8%
  • capital requirements imposed under the ECB’s Supervisory Review and Evaluation Process, which go beyond the Pillar 1 minimum requirements
  • countercyclical capital and systemic buffers
  • the ‘fully loaded’* Pillar 1 requirements and the countercyclical capital and systemic buffers by the full phase-in date.

These requirements should be met both at a consolidated group level and on an individual basis, unless requirements for the latter have been waived.

  • The ECB issued 3 recommendations for dividends paid out in 2016 for the financial year 2015:
    • 1.

      Banks that satisfy the capital requirements and have reached their ‘fully loaded’ ratios by 31 December 2015 should distribute dividends conservatively so that they can continue to fulfil all requirements even if economic and financial conditions deteriorate.

    • 2.

      Banks that satisfy the capital requirements, but have not reached their ‘fully loaded’ ratios by 31 December 2015 should also distribute dividends conservatively so that they can continue to fulfil all requirements even if economic and financial conditions deteriorate, but in addition only to the extent that a linear progress towards their ‘fully loaded’ ratios within 4 years is secured.

    • 3.

      Banks that fail to meet the requirements should not distribute any dividends.

BACKGROUND

Banks need to satisfy certain capital requirements and buffers. The challenging macroeconomic and financial environment puts pressure on banks’ profitability and their ability to build up their capital bases.

The ECB recommends that banks adopt policies that enable them to meet the capital requirements after paying out dividends.

* KEY TERMS

fully loaded: the applicable ratios and buffers as they will be calculated from the relevant full phase-in date after the expiry of the transitional provisions (set out in Title XI of Directive 2013/36/EU and Part Ten of Regulation (EU) No 575/2013).

MAIN DOCUMENT

Recommendation ECB/2015/49 of the European Central Bank of 17 December 2015 on dividend distribution policies (OJ C 438, 30.12.2015, pp. 1-3)

RELATED DOCUMENTS

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, pp. 1-337)

Successive amendments to Regulation (EU) No 575/2013 have been incorporated into the original document. This consolidated version is of documentary value only.

Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) (ECB/2014/17) (OJ L 141, 14.5.2014, pp. 1-50)

Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, pp. 338-436)

See consolidated version.

last update 29.08.2016

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