Bank of England under mounting pressure to stop all bank dividend payouts to shareholders to increase amount of money they have to lend to struggling coronavirus-hit businesses
- Bank of England Governor Andrew Bailey told to stop bank dividends being paid
- Finance experts believe move necessary to equip banks with more cash to lend
- Many businesses now ‘at the edge of the precipice’ and will need urgent credit
- Banks in the UK are due to issue dividends worth £7.5bn in the coming weeks
- Coronavirus symptoms: what are they and should you see a doctor?
The Bank of England is today facing mounting pressure to stop British banks paying out dividends worth billions of pounds to make sure the sector has as much cash as possible to lend to coronavirus-hit businesses.
UK banks are expected to pay out an estimated £7.5 billion in dividends in the coming weeks.
But financial experts are urging Bank of England Governor Andrew Bailey to block the payouts to shareholders.
They believe the move is necessary to ensure the banking sector has all of the financial firepower required to keep struggling businesses afloat.
The world’s ‘bank for central banks’, the Bank for International Settlements, has called for a ‘global freeze’ on bank dividend payouts.
However, should such a move be implemented by the Bank of England it would likely prompt shareholder fury given that banking executives have been issued with bonuses in recent weeks.
The Bank of England, pictured on March 20, is under pressure to halt British bank dividend payouts
Agustin Carstens, the head of the Bank for International Settlements, has called for a ‘global freeze’ on bank dividend payouts to ensure banks have as much cash as possible to lend to businesses during the coronavirus crisis
Agustin Carstens, the general manager of the Bank for International Settlements, said banks need to be in a position to help ‘firms at the edge of the precipice’.
He said issuing dividend payouts would harm their ability to fulfil that task because they would be reducing the amount of capital in their war chests.
Writing for the Financial Times, Mr Carstens said: ‘Central bank interventions to quell the crisis need to reach the individuals and businesses who are ultimately affected.
‘The last mile of this channel is not yet in place and needs to be bridged urgently.’
Mr Carstens said that ‘banks should be part of the solution’ during the coronavirus crisis and ‘not part of the problem’.
He added: ‘Now is the time to draw on the accumulated balance sheet buffers that were built while the sun was shining.
‘To boost lending capacity further, we need a global freeze on bank dividends and share buybacks.’
The European Central Bank has already told banks in EU member states not to issue dividends until October at the earliest.
The ECB said in a statement issued on March 27: ‘To boost banks’ capacity to absorb losses and support lending to households, small businesses and corporates during the coronavirus (COVID-19) pandemic, they should not pay dividends for the financial years 2019 and 2020 until at least 1 October 2020.’
Sir John Vickers, the former chairman of the Independent Commission on Banking, said ‘dividend payouts by banks should now be totally out of the question’.
Andrew Bailey, the governor of the Bank of England pictured in February, will have to act quickly if he is to stop the payouts given that some are due to start at the end of the week
He called for the Bank of England to ‘put a stop to them… at once’, according to comments reported by The Times.
Some bank dividends are due to start being issued at the end of the week so the Bank of England will need to move swiftly if it is to halt the process.
Chief executives of numerous big UK banks are expected to meet today to discuss the crisis and the sector’s response to it, with dividend payments likely to be on the agenda.
Critic have questioned why the world’s central banks have not acted in unison on the issue to impose a global ban on bank dividend payouts.
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