The authors use data on 70 large internationally active banks and separate them into two groups: those with low and high concerns about MDAs due to different preferences over stable dividends. [10] By comparing how these two groups of banks behaved when MDAs were introduced and during the Covid-19 stress, they explore the effect of automatic distribution restrictions on banks’ capital surpluses to regulatory requirements and their willingness to lend. [11] They find that at the time MDAs were introduced, banks more concerned about distribution restrictions and with low capital surpluses above regulatory buffers worked to build greater capital surpluses than their peers. [12] MDA policy acted as intended, by incentivising banks to build and maintain their loss absorbency in normal times hence helping the banking system to become stronger against shocks. A less comfortable message comes, however, from the analysis of bank behaviour during the Covid-19 period. Bank boards are concerned with investor reaction in response to a dividend cut. But they are even more concerned with investor reaction in response to an AT1 coupon cut. One reason for this is the different claims on banks’ net assets that different investors have. Shareholders maintain their claim on banks’ future profits regardless of whether they receive a dividend in any particular period. This is not the case for AT1 holders – if they lose a coupon this period, they will not recover it thereafter. It’s instructive to note that regulators that restricted distributions during the Covid-19 crisis fell short of restricting AT1 coupons.

It is by all means a very ambitious project that includes more than 55 activities and benchmarks, more than 10 directives to be transposed, several legal acts to be prepared, and many internal procedures to be created for a better supervision that complies with the international best practices. This project comes at a very specific moment for the global financial sector. It aims to create conditions for long term economic stability and growth by strengthening the regulatory and supervisory frameworks of the capital and financial markets and by improving the institutional and regulatory capacities of the financial sector regulators to supervise financial markets and institutions in line with the EU acquis. Therefore, the objectives of the Twinning Project are fully in line with the main lesson from the crisis – that stability and growth cannot be maintained without a stable and well functioning financial sector. First, let me present our consortium and the project team. The consortium unites the experience of a Еurosystem central bank (De Netherlandsche Bank) – with a proven track record of successful technical assistance projects for accession country institutions – together with the expertise of the Bulgarian National Bank and the Financial Supervision Commission, both having the most recent and relevant experience in EU harmonization in a new Member State. This combination of experience is further strengthened by the longstanding and successful cooperation between the consortium members. The advantage of having a consortium is that it offers larger experience and a broader pull of experts from the twinning partner institutions.