Template-Type: ReDIF-Paper 1.0
Author-Name: Miguel Ampudia
Author-X-Name-First: Miguel
Author-X-Name-Last: Ampudia
Author-Name: Manuel A. Muñoz
Author-X-Name-First: Manuel
Author-X-Name-Last: Muñoz
Author-Name: Frank Smets
Author-X-Name-First: Frank
Author-X-Name-Last: Smets
Author-Name: Alejandro Van der Gothe
Author-X-Name-First: Alejandro
Author-X-Name-Last: Van der Gothe
Title: System-wide dividend restrictions: evidence and theory
Abstract: We provide evidence that the ECB system-wide dividend recommendation (SWDR) of March 2020 contributed to sustain lending, had a negative but moderate and transitory impact on bank stock prices and largely operated as a deferral of dividend payouts rather than as a dividend cut. Then, we develop a quantitative macro-banking DSGE model that accounts for this evidence and captures the key mechanism through which SWDRs operate to study the general equilibrium effects of the ECB SWDR. The measure contributed to sustain aggregate bank lending and mitigate the adverse impact of the COVID-19 shock on economic activity by safeguarding euro area banks' capitalization. Welfare-maximizing SWDRs stabilize the economy regardless of the shock type but they only induce significant welfare gains in response to financial shocks.
Creation-Date: 2023-10
File-URL: https://www.bis.org/publ/work1131.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1131.htm
File-Format: text/html
Number: 1131
Keywords: dividend recommendation, dividend prudential target (DPT), COVID-19, usable capital buffers, welfare
Classification-JEL: E44, E58, E61
Handle: RePEc:bis:biswps:1131