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Bank capital buffer releases, public guarantee programs, and dividend bans in COVID-19 Europe: an appraisal

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  • Alexandra Matyunina

    (University of Zurich)

  • Steven Ongena

    (University of Zurich)

Abstract

We analyse the recent policy decisions made by the European Central Bank and the national authorities related to capital and shareholders’ remuneration aimed at promoting banking credit supply in COVID-19-afflicted economies. We forecast the impact of the regulatory decisions based on the empirical literature and discuss the factors that reduce the banks’ incentives to expand their loan portfolios. We argue that the introduction of the dividend ban caused a surge in regulatory uncertainty and undermined banks’ market valuation raising the expected funding costs and contributing to the banks’ reluctance to make use of the capital buffers. We develop policy suggestions intended to mitigate this effect.

Suggested Citation

  • Alexandra Matyunina & Steven Ongena, 2022. "Bank capital buffer releases, public guarantee programs, and dividend bans in COVID-19 Europe: an appraisal," European Journal of Law and Economics, Springer, vol. 54(1), pages 127-152, August.
    • Handle: RePEc:kap:ejlwec:v:54:y:2022:i:1:d:10.1007_s10657-022-09734-9
    DOI: 10.1007/s10657-022-09734-9
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    References listed on IDEAS

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    Cited by:

    1. Dautović, Ernest & Gambacorta, Leonardo & Reghezza, Alessio, 2023. "Supervisory policy stimulus: evidence from the euro area dividend recommendation," Working Paper Series 2796, European Central Bank.
    2. Acosta-Smith, Jonathan & Barunik, Jozef & Gerba, Eddie & Katsoulis, Petros, 2024. "Moderation or indulgence? Effects of bank distribution restrictions during stress," Bank of England working papers 1053, Bank of England.
    3. Emiel Sanders & Mathieu Simoens & Rudi Vander Vennet, 2023. "Curse and blessing: the effect of the dividend ban on euro area bank valuations and syndicated lending," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 23/1078, Ghent University, Faculty of Economics and Business Administration.
    4. Marsh, W. Blake, 2023. "Supervisory stringency, payout restrictions, and bank equity prices," Journal of Banking & Finance, Elsevier, vol. 154(C).
    5. Mücke, Christian, 2023. "Bank dividend restrictions and banks' institutional investors," SAFE Working Paper Series 392, Leibniz Institute for Financial Research SAFE.

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    More about this item

    Keywords

    COVID-19; Regulatory decisions; Regulatory uncertainty; Capital buffer release; Dividend bans; Guarantee schemes;
    All these keywords.

    JEL classification:

    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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