Specifically, the ECB expects dividends and share buy-backs to remain below 15% of cumulative 2019-20 profit and to be no higher than 20 basis points of the CET1 ratio, if this is lower. These measures provide more flexibility than the earlier recommendation. This is warranted by a slight decline in the macroeconomic uncertainty compared with the spring and by the fact that the core projection scenarios are close to those used in the vulnerability analysis carried out by the ECB in the first half of 2020 which, as I indicated above, confirmed the resilience of the European banking sector. In any event, a prudent approach is still required, considering that the impact of the pandemic has not yet been fully reflected in banks’ balance sheets, that banks continue to benefit from various public support measures and that credit impairment arises with a time lag. The revised recommendation aims to safeguard banks’ loss-absorbing capacity and to provide support to the economy. The recommendation will remain valid until the end of September 2021 when, provided there are no materially adverse developments, the ECB intends to lift the recommendation and return to assessing banks’ capital and dividend distribution plans based on the outcome of the normal supervisory cycle. Post-crisis, banking sector resilience is key Once the crisis comes to an end and its effects have receded, we will also need to ensure that the banking sector remains resilient, especially to any new risks that may emerge. In this regard, I wish to make a reflection on global banking regulation.

The message I wish to convey is that banks should persist with their early recognition policy, as this will enable them to continue to fulfil their task of providing funding to the economy. It is important that banks analyse situations individually, distinguishing between temporary and more permanent effects. Automatic reclassifications that result in excessively procyclical behaviour should be avoided. However, above all, banks must be prudent, assessing provisioning needs in accordance with plausible and conservative scenarios for the coming years. In short, especially should the crisis be prolonged, banks must ensure timely and proper recognition of the effective quality impairment of their credit exposures in compliance with the supervisory guidelines. Secondly, I wish to refer to the capital buffers built up and their use during this crisis. As I mentioned earlier, solvency levels are now significantly higher than in the run-up to the global financial crisis. At the start of this crisis, prudential supervisors decided to release many macroprudential buffers – the capital, countercyclical and systemic risk buffers – and, at the same time, the microprudential authority temporarily allowed banks to operate below the level set for certain structural requirements. These decisions sought to help banks continue to provide the financing that households and firms need in such an adverse environment as the present one. Our empirical analysis shows that the use of these buffers will enable banks to provide more funding to the real economy. This in turn has a positive impact on economic growth, encouraging its recovery or moderating its decline.