By Ernest Dautović, Leonardo Gambacorta, Alessio Reghezza
The ECB recommended that banks not pay out dividends during the COVID-19 pandemic. This column shows that the recommedation led to increased lending to non-financial corporations, with lending by complying banks around 2.2 percentage points stronger than lending by banks that did not change their plans. The effect was stronger for small and medium-sized enterprises most affected by the pandemic and was short-lived. It did not lead to greater risk-taking by banks. The findings suggest that temporarily restricting bank dividend distributions complemented macroprudential, monetary and fiscal policies to support lending during the pandemic crisis.
Link: A new tool in the box: Dividend restrictions as supervisory policy stimulus