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

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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.
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  • H2020 European Research Council (ERC ADG 2016 - GA 740272 lending)
  • Schweizerischer Nationalfonds zur Förderung der Wissenschaftlichen Forschung
  • University of Zurich

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