The European Central Bank is calling for an easing of EU rules effectively banning banks from paying dividends, bonuses and some coupons if they make a loss that drags their capital below the minimum, a senior official said yesterday.
Under European rules, a bank is de facto banned from such payouts if it makes a loss that brings its capital level below its Combined Buffer Requirement set by supervisors.
This rule would unfairly penalise a bank if, for instance, the loss were to happen too late in the year for the institution to raise fresh capital, Korbinian Ibel, a director-general in the ECB’s supervisory arm told reporters.
“That automatism can lead banks to very unpleasant situations maybe not so much by their own fault and they don’t have a chance to get out of that,” Ibel said.
“We need to have a change ... so that something like that will not happen in the future.”
According to Morgan Stanley estimates published last month, Italy’s largest bank UniCredit was just 44 basis points clear of the required capital level, compared to 390 basis points for peer Intesa Sanpaolo.
BNP Paribas was also low on the measure with a 90 basis points buffer over the minimum.
The ECB took over supervision of the eurozone’s largest banks (currently 129) from national authorities in late 2014 to improve scrutiny of the sector after the financial crisis.
Ibel made the remarks in a briefing about the central bank’s supervisory review and evaluation process (SREP), which set capital requirements for this year.
On average, the ECB has required the banks on its watch to hold a Core Equity Tier 1 capital ratio of 9.9% this year, comfortably below an average ratio of around 13% for those banks as of last September.
Yet five banks missed the target and one barely made the grade. Banks that missed include Italy’s Popolare di Vicenza and Veneto Banca, which published their requirements in December at the behest of the Italian market watchdog.
The ECB does not publish individual thresholds but Ibel said it will no longer discourage banks from doing so if they want to, in line with a recommendation from the European Banking Authority.
If a bank fails to meet its threshold, which is known as Pillar 2 and comes on top of the so-called Pillar 1 buffers set for all banks, the ECB can take action ranging from restricting payouts to even withdrawing a bank’s licence.
The bar for such an extreme measure was set high, however, Ibel said.
“You as a supervisor always have to take the measure that is correcting the issue with the least impact on the organization,” he said.
“You will not withdraw a licence because you (a bank) have a tiny breach of Pillar 2 but you might do if you have already eaten into the entire P2 (Pillar 2) and into the P1 (Pillar 1) as well.”