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ECB calls for easing of payout rules for loss-making banks

Friday, February 19, 2016 - 20:38

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The European Central Bank is calling for an easing of EU rules effectively banning banks from paying dividends, some coupons and bonuses if they make a loss that drags capital below the regulatory minimum, a senior official said on Friday.

[FRANKFURT] The European Central Bank is calling for an easing of EU rules effectively banning banks from paying dividends, some coupons and bonuses if they make a loss that drags capital below the regulatory minimum, a senior official said on Friday.

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 it to raise fresh capital, Korbinian Ibel, a director general in the ECB's supervisory arm told reporters, calling for a change.

"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.

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"We need to have a change ... so that something like that will not happen in the future." Ibel made the remarks in a briefing about the ECB's supervisory review and evaluation process (SREP), which set bank capital requirements for this year.

On average, the ECB has required the 129 banks on its watch to hold a Core Equity Tier 1 capital ratio of 9.9 per cent this year, comfortably below an average ratio of around 13 per cent as of last September.

Yet five banks missed the target set for them by the ECB and one barely made the grade.

REUTERS

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