The ECB recommended that banks exercise extreme prudence on dividends and keep 2022 bonuses in check due to fears of the darkening economic outlook.
The euro area’s top banks have recently warned their individual lenders of possible restraints in variable payments and dividends amid the energy crunch that could result in a wave of defaults. If this scenario comes true, the ECB will need money to stabilize the banking sector. Besides, there is "a certain reluctance on the side of banks to seriously engage in supervisory discussions", ECB Supervisory Board Chair Andrea Enria said. Europe is facing "a persistent and fully fledged macroeconomic shock." This is why supervisors should exercise extreme caution, the ECB official added. The majority of economists also expect the eurozone’s economy to aggravate considerably.
In late September, inflation surged to 10%, the highest level on record. Just a year ago, it totaled 3.4% in annual terms. Analysts surveyed by Bloomberg reckon that there is an 80% chance that the euro area will slide into a recession in the first two quarters of 2023.
