Interview with Bloomberg TV

Interview with Andrea Enria, Chair of the Supervisory Board of the ECB, conducted by Anna Edwards and Matt Miller on 31 March and published on 1 April 2020

1 April 2020

Andrea, very good to speak to you today. You’re clearly putting pressure on banks with regard to dividends. You also talk about banks showing restraint on bonuses. Do you mean restraint on bonuses for 2019, or is this about 2020 and how you shape the bonus structure there?

As we say in our recommendation on dividend payments, we want to instil in banks a strong commitment to preserve every euro of capital that could be useful to lend to the economy – to small and medium-sized enterprises (SMEs) and to households – in the months to come. Showing restraint on bonuses also means paying them in shares or share-linked instruments, for instance. Euro area banks already pay 45% of their variable remuneration in instruments. So exercising restraint and preserving capital should be a priority right now.

People already have obligations from 2019, right? Is that done and dusted? Should banks be focusing on restraining 2020 bonuses?

Again, the same applies as for dividends. Our economies are going into pause. We have taken extraordinary measures to tackle this pandemic. Bank shareholders, managers and key risk-takers should also play their part in the rethink on where we are right now and try to preserve as much capital as possible. As I say, dividends were more of a concern for us because €30 billion were in the pipeline to leave the sector right now. So it was important for us to go out with the recommendation. Bonuses are less of an issue in terms of quantity and because they are, to a large extent, already paid in instruments. But still, our recommendation to banks is to be very moderate on bonuses as well.

What happens to banks that don’t stick to your suggestions regarding dividends? What levers can you pull?

First of all, let me say that I am very pleased to see that banks are reacting very positively. They are taking responsibility. I think that’s also an important step for their own reputation, for showing corporate responsibility in a difficult time for our economies. If banks decide not to comply with the recommendations, we will decide whether to take other measures. We can also take legally binding measures if need be.

Who are the biggest dividend-paying banks that haven’t fallen into line yet? We notice in France there are a number of big banks that haven’t come out with any statements on this yet.

I’m not commenting on individual banks. I expect all banks to come into line with the recommendation that we issued.

Let me ask you about signs of distress that you’re seeing reported by banks. Obviously you want the banking sector to keep lending to customers. Are you seeing any data or having any conversations with the banking sector that suggest their customers are already in distress because of the current situation?

Our capital conservation measures don’t reflect any specific fragility that we see in the banking sector right now; they’re really aimed at maximising the firepower of banks to support their customers. What we’re seeing, of course, is that customers are drawing on committed credit lines, as was expected to happen. So there is a ratcheting up in the demand for credit from corporates, especially those that are probably meeting some difficulties owing to the freeze in their revenues, which is linked to the restrictive measures adopted by governments. We expect this to continue. And we want banks to be able to support their customers. Of course, the relief measures which are being issued by several euro area governments in terms of guarantees, moratoriums and the like should also help in this respect.

How about the financial health of banks in terms of liquidity: are you noticing any worrying outflows of deposits?

No, at the moment we are not seeing outflows of deposits. Actually, we’re seeing deposits increasing to some extent. Banks’ liquidity is, of course, being affected by customers drawing on credit lines – which is absolutely right. I think it is important that markets and investors also understand that our message is that banks should now use the buffers, both the capital buffers and the liquidity buffers. They have been built up in good times to be used exactly in times like these. So, for us, there should be no negative judgement attached to banks using them right now.

Under what circumstances would you recommend suspension of Additional Tier 1 coupon payments to banks? Or is this a matter for individual regulators? And are there other ways that you will be intervening in the way that banks pay back money to those who have invested in them?

We have no plans to suspend Additional Tier 1 or Tier 2 payments. There are clear rules in the legislation for suspending those payments. At the moment, banks are very far from hitting the triggers for the suspension of those payments.

Do you see banks continuing to do the lending that you want to see them do, that governments want to see them do, in order to get other corporates through this crisis?

At the moment, credit lines are the main channel through which the banks are supporting their customers. I expect and hope that the relief measures that are being put in place by governments will be operational soon so that the guarantee schemes can also be used to continue and even increase the support for the economy in these difficult times.

You’ve obviously given a lot of relief to the banking sector. You’ve told them to use the buffers as you’ve described. Is there any danger that the relief you’ve offered could damage the ECB’s reputation for rigorous supervision?

I hope not, because that’s exactly how the post-crisis regulatory framework has been set up and should work. You should build up the buffers in good times and be ready to use them in bad times. We have not changed the level of capital that we request banks to have available at all times. However, we have made the buffers available because that’s what they are there for. The relief that we gave is quite substantial; it’s €120 billion worth of capital that can be used. According to our calculations, this amounts to approximately €1.8 trillion in potential lending to households and SMEs. It’s quite a significant amount of space that banks have available now.

Are you concerned about the build-up of debt throughout this crisis? When we come out the other side, is the amount of debt in the system going to be a concern for the banks that you supervise?

Well, the point is that we have to freeze the economy during this period. So we need to prevent corporates and SMEs from failing just because the restrictive measures are freezing their revenue side. We need to maintain the productive capacity in the system. This debt should mainly be used to support working capital, and so it should be easily paid back after the crisis. The government guarantees are, of course, a big relief, from that point of view, in terms of the final impact on the balance sheets of the banks.