Authorities call on bankers to adjust bonuses in response to pandemic

A woman withdraws cash from an ATM at a local branch of the BBVA bank in Valencia, eastern Spain, 17 March 2020. BBVA President, Carlos Torres, announced that the bank's senior staff would not get their bonus this year in response to the coronavirus. [EPA-EFE/MANUEL BRUQUE]

Banking authorities are calling on European lenders to cut their bonuses for this year in order to reflect the impact of the coronavirus and dedicate more resources to the real economy.

The European Banking Authority issued a statement late on Tuesday (31 March) recommending that banks review their remuneration policies. 

The EU’s banking regulator told national authorities to ask for adjustments to strengthen their financial situation as the region prepares to suffer a severe recession. 

“Remuneration and, in particular, its variable portion, should be set at a conservative level,” the EBA added.

The banking regulator said that, in order to adjust wages and bonuses to the pandemic scenario, a bigger part of the variable salary could be postponed and a larger proportion could be paid in equity.

The recommendations came after the European Central Bank also issued similar guidance for the financial entities of the euro area.

EU Commission expects deeper recession than in 2009

The economic slump caused by the coronavirus COVID-19 is expected to be deeper than the 2009 Great Recession, according to a European Commission document seen by EURACTIV.

The head of the ECB’s banking supervisory board, Andrea Enria, told Bloomberg TV on Tuesday that “banks, shareholders, managers and key risk takers should also take part in the rethink of where we are right now and try to preserve as much capital as possible.”

“Our recommendation to banks is to be very moderate on bonuses,” he said.

Bank bosses across the region are already announcing they are partly or fully giving away their bonuses.

The president of Spanish bank BBVA, Carlos Torres, announced this week that the bank’s senior staff would not be paid the 2020 bonus.

“We have to do everything possible to protect the employment of all of us at BBVA, even if that also implies that we have to make sacrifices,” he told staff in a message.

More than 300 senior staff will be affected, saving around €50 million.

The president of Santander, Ana Patricia Botín, announced that she would halve her salary and bonus, and the same would apply to her CEO.

The review of the remuneration system for European bankers came on top of the ECB and the EBA’s recommendations to limit or refrain from dividend distribution and share buybacks.

The authorities want the financial system to dedicate all the available resources to financing the real economy, especially SMEs, in this difficult period.

Cancelling the dividend distribution among shareholders “will allow banks to make full use of their capital buffer to keep funding EU households and businesses during the coronavirus pandemic,” said the European Commission vice-president for financial services, Valdis Dombrovskis. “I am confident that European banks will follow suit.”

Jean-Pierre Mustier, president of the European Banking Federation, said banks stand with their customers “under these difficult circumstances”.

“Exceptional times call for exceptional measures. We hope that the economic conditions will have normalized by October. By then European banks boards should be able to re-assess their dividend and share buy-back strategy,” he said.

In order to support the banks, regulators are letting financial institutions to use their capital buffers accumulated during the post-crisis years to weather these difficult months.

In addition, regulators across the world agreed last week to postpone by one year the implementation of Basel III rules, which would have forced European banks to increase their capital by €135 billion, according to a conservative estimate by the EBA.

European banks face massive capital raising in challenging times

Europe will “faithfully” implement new international standards that will force its banks, struggling to regain investor trust, to raise around €135 billion in additional capital to face future crises, the European Commission said on Tuesday (12 November).

[Edited by Zoran Radosavljevic]

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