Manuel A. Muñoz, 03 July 2020

According to the evidence, banks in the euro area are particularly reluctant to cut back on dividends during economic recessions. That is, the bulk of the adjustment in the face of negative shocks that hit bank profits is borne by undistributed net income. This column argue that this pattern can notably exacerbate the impact of a negative supply shock such as the COVID-19 pandemic on bank lending and economic activity. Using a macro-banking DSGE model calibrated to quarterly data of the euro area economy, it concludes that restricting dividend distributions has the potential to significantly improve the effectiveness of the countercyclical capital buffer release in ensuring that banks keep funding households and firms during the COVID-19 crisis.


This online seminar will introduce and discuss the rationale, merit and scope of the ESRB Recommendation on the restriction of pay-outs during the COVID-19 pandemic. 

Francesco Mazzaferro will present the report and the ESRB Recommendation to achieve a uniform approach to restraints on pay-outs across the European Union and across different segments of the financial sector. This ESRB recommendation comes in support of previous initiatives from the European Central Bank, the European Banking Authority, the European Insurance and Occupational Pensions Authority and national authorities to insist on the need for banks, insurance companies to refrain from paying dividends and variable compensation and buying back shares until at least 1 January 2021 – and possibly longer in case of necessity.

The debate will explore the merits in terms of macro-prudential arguments and impact of a wide-ranging restrictions on pay-outs across the different segments of the financial system.

The debate will be chaired by Elena Carletti (Bocconi University, Florence School of Banking and Finance and CEPR), moderated by Jan-Pieter Krahnen (Goethe University, Leibniz Institute for Financial Research SAFE and CEPR) and will feature as commentators Viral V. Acharya (New York University, Stern School of Business and CEPR) and Sylvie Mathérat (DB USA Corp. and DWS Group GmbH & Co. KGaA; formerly at Deutsche Bank AG).


Elena Carletti
Professor of Finance, Bocconi University
Florence School of Banking and Finance, and CEPR


Jan-Pieter Krahnen
Goethe University,
Leibniz Institute for Financial Research SAFE,


Francesco Mazzaferro
European Systemic Risk Board (ESRB)


Viral V. Acharya
New York University
Stern School of Business,

Sylvie Mathérat
EU commission High Level Forum
on Capital Market Union

Peter Cziraki, Christian Laux, Gyöngyi Lóránth, 26 October 2016

Banks' payout decisions at the beginning of the financial crisis of 2007-2009 were particularly controversial as the crisis eroded the capital of many banks. Concerns were raised that banks may have engaged in wealth transfer to shareholders, or that they may have been reluctant to reduce dividends to avoid negative signalling. This column examines these arguments using a large dataset on US bank holding companies. Cross-sectional tests do not provide clear-cut evidence of active wealth transfer. Similarly, the evidence on signalling is mixed.

CEPR Policy Research