Banks have had a good crisis, but that doesn’t mean they are fit to weather the next one.
On Tuesday, the Bank of England freed U.K. lenders of restrictions on shareholder payouts introduced early in the pandemic. It said the financial sector remains resilient to outcomes much more severe than their central forecast, with enough “capital and liquidity to be able to support the economy.”
This follows the bumper shareholder payouts announced last month by U.S. banks after a similar easing of the guidelines on dividends and buybacks. European regulators were slightly more cautious in their announcement earlier this month: In the eurozone, normal shareholder payouts can resume at the end of the third quarter.
On the whole, banks on both sides of the Atlantic have weathered the biggest economic dislocation in many generations without much sign of damage and even some success. Capital buffers are bulging. Loan-loss provisions booked early in the crisis have started to be reversed in the U.S., though European lenders are more cautious. Investment banks have capitalized on market ructions and reported fat trading profits.
But this says less about the health of the banking sector than it does about the nature of the crisis. Arguably, lenders have escaped bailouts primarily because their customers were bailed out instead.