The COVID-19 pandemic has incurred large human and economic costs and also affected the financial sector. Maintaining own funds in financial institutions is important both for ensuring the resilience of the financial system and supporting banks’ lending through this crisis.
To this end, Finansinspektionen (FI) reiterates the recommendation made on 8 June 2020 by the European Systemic Risk Board (ESRB) on the restriction of distributions during the COVID-19 pandemic. The aim of the recommendation is for financial institutions to refrain from actions that reduce the quantity and quality of own funds. The actions mentioned are dividend distribution, buy-back of ordinary shares, and the creation of obligations to pay variable remuneration to material risk-takers.
In the past months, the ways in which FI has communicated to the financial institutions under its supervision on dividends and distribution policies are consistent with the objectives of the recent ESRB’s recommendation.
In particular, FI sent letters at the end of March to all banks and credit market companies under FI’s supervision urging the boards of directors to immediately modify proposed resolutions in order to not pay any dividends. The objective was to ensure that these firms continue to have good resilience to potential credit losses and the capacity to uphold the supply of credit.
On 9 April, FI reiterated EIOPA’s statement that insurance companies should take measures to preserve their capital position in balance with the protection of the insured, following prudent dividend and other distribution policies, including variable remuneration.
On 26 June, FI sent a letter from Erik Thedéen to NASDAQ Clearing in which FI states that it expects Nasdaq Clearing to refrain from dividend pay-outs until the economic situation becomes less uncertain.
FI considers that it has fulfilled the intentions of the recommendation and does not regard it as necessary to further extend this guidance at this time.