The International Monetary Fund has told banks to stop payouts to shareholders during the Covid-19 crisis to build capital buffers against market shocks given the uncertainty surrounding the economic impact the pandemic will cause.
IMF financial counsellor Tobias Adrian said lenders should prepare for the worst during a 22 May live-streamed interview over Twitter.
“Preparing for the worst in terms of bank capital means that stopping payouts, either in the form of dividend payouts or repurchases, is going to help build capital in the banking system,” said Adrian, who is also the director of the organisation’s monetary and capital markets department.
“When you look at the 30 largest banks globally, the globally systematically important banks, those paid out about $250bn last year, so that’s a substantial amount and, by stopping the payouts, that’s helping to build up additional cushions against further adverse shocks,” the economist added.
He cited the Bank of England as an example of a regulator that has urged banks to stop payouts, and noted the stress testing among US banks to determine if they should halt buyouts.
Adrian added that the money will not be “lost” as it can be paid out to shareholders further down the line. “It’s just retained in the bank as a buffer against any future adverse shocks,” he said.
Adrian’s comments come after the publication the group’s Global Financial Stability Report, which predicts banks profitability will be affected until at least 2025.
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