The European Systemic Risk Board (ESRB) has recommended the banks in the European Union (EU) to suspend dividend payouts, bonuses, or share buybacks at least until the end of 2020.

The implementation of the ESRB recommendation would result in an extension to the Eurozone ban on the payout by three months or more.

This will enable the banks to create a buffer to withstand the adverse economic conditions triggered by the Covid-19 pandemic.

ESRB is hosted by the European Central Bank (ECB) under the leadership of ECB chief Christine Lagarde.

Lagarde said: “Over the past two months, the depth and length of the crisis have become clear.

“This further highlights the need for banks to refrain from paying dividends, buying back shares and paying variable compensation until at least 1 January 2021 – and possibly even longer if additional data indicate a slower release from containment policies and potentially a deeper economic slump.”

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The system-wide restraint on dividends by ESRB comes after the central bank issued a recommendation in March stating that no dividends should be distributed at least until October 2020.

ESRB, which was established in response to the financial crisis, acts as a pan-European financial stability watchdog.

In a background report, ESRB noted: “Several national authorities have asked all banks in their jurisdiction – including subsidiaries of European Union cross-border banks – to suspend pay-outs.

“These national policies are driven by financial stability concerns and are part of wider national policy packages that are aimed at ensuring stable funding to the real sector in the respective countries.”