Discussion paper

DP18467 System-wide Dividend Restrictions: Evidence and Theory

We provide evidence that the ECB system-wide dividend recommendation (SWDR) of March 2020 contributed to sustain lending, had a negative but moderate and transitory impact on bank stock prices and largely operated as a deferral of dividend payouts rather than as a dividend cut. Then, we develop a quantitative macro-banking DSGE model that accounts for this evidence and captures the key mechanism through which SWDRs operate to study the general equilibrium effects of the ECB SWDR. The measure contributed to sustain aggregate bank lending and mitigate the adverse impact of the COVID-19 shock on economic activity by safeguarding euro area banks’ capitalization. Welfare-maximizing SWDRs stabilize the economy regardless of the shock type but they only induce significant welfare gains in response to financial shocks.


Ampudia, M, M Muñoz, F Smets and A Van der Ghote (2023), ‘DP18467 System-wide Dividend Restrictions: Evidence and Theory‘, CEPR Discussion Paper No. 18467. CEPR Press, Paris & London. https://cepr.org/publications/dp18467