Bank of England

Bank of England chief wants lenders to take their own decisions to cut shareholder dividends

Key Points
  • Barclays, Santander, Lloyds, NatWest, Standard Chartered and HSBC agreed in April to scrap dividends amid pressure from the central bank to preserve capital in order to support the economy.
Andrew Bailey, governor of the Bank of England, poses for a photograph on his first day in the post at the central bank in the City of London, U.K., on Monday, March 16, 2020.
Jason Alden | Bloomberg via Getty Images

The Bank of England wants to establish a situation in which banks take their own decisions to scrap dividends during economic downturns, Governor Andrew Bailey told CNBC Thursday.

Barclays, Santander, Lloyds, NatWest, Standard Chartered and HSBC agreed in April to scrap dividends following pressure from the central bank to preserve capital in order to help support the economy ahead of the recession caused by the coronavirus pandemic.

The Bank's Prudential Regulation Authority said at the time that although the decision would mean shareholders being deprived of dividend payments, it would be a precautionary step given the "unique role that banks need to play in supporting the wider economy through a period of economic disruption."

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Speaking to CNBC's Geoff Cutmore on Thursday, Bailey said that the BOE's intervention in pressuring banks to reduce dividends was "entirely appropriate and sensible" given the speed at which action needed to be taken, with the U.K. heading into a prolonged period of lockdown in a bid to curtail the spread of Covid-19.

"I want to get back to a situation where A) very importantly, the banks are taking those decisions themselves and B) they take those decisions bearing in mind their own situation and bearing in mind the broader financial stability concerns of the system," Bailey said.

"I think that is in the interest of everybody, including shareholders, because obviously shareholders want stable banks."

Bailey vowed that the BOE would get back to this situation, but said he couldn't estimate the level of dividend payments investors could expect from British lenders as the country attempts to emerge from the coronavirus pandemic in the coming years.

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