For healthier European banks, turn off the dividend spigot

New York

EUROPEAN banks' high litigation and restructuring costs have resulted in major losses on their books and abysmal stockmarket performance. As the industry and European regulators now reflect on this dismal state of affairs and search for solutions, they should consider banks' revenue distribution - including employee bonuses and shareholder dividends - as part of the problem.

Revenue distribution is one primary reason for European banks' capital shortfalls. To understand why, we should look back to October 2014, when the European Banking Authority (EBA) began balance-sheet stress tests for the eurozone's 123 largest banks and found a capital shortfall of 25 billion euros (S$38.2 billion) in all of them.