Payout restrictions and bank lending: evidence from a blanket dividend ban

At the onset of the COVID-19 pandemic, financial system regulators around the world took an array of policy measures in order to stimulate credit supply from banks to companies that were temporarily suffering from a drop in revenues. Preventing interruptions in the credit supply during crises is crucial in minimizing damage to the economy and facilitating economic recovery. One of such policy measures in some jurisdictions was an introduction of a moratorium on dividend payments from the banks to their shareholders. This measure was intended to preserve bank capital and urge the banks to spend it on additional lending to their borrowers. However, there is evidence suggesting that, because of this measure, the costs of raising new capital in the future are now higher for the banks that were subject to dividend payout restrictions. As a result, the banks might be reluctant to spend their capital on loans that would help otherwise viable firms to survive the crisis. It is important to evaluate the impact of novel policy decisions on bank lending to improve international banking regulation.

Faculty Supervisor:

Hsuan Fu

Student:

Partner:

University of Zurich

Discipline:

Business

Sector:

Finance and Insurance; Public Service, Policy, and Governance; Other

University:

Université Laval

Program: