Sam Woods, deputy governor of the Bank of England, and chief executive of the Prudential Regulation Authority (PRA), had written to top lenders including Lloyds, HSBC, Nationwide, Santander and RBS urging them to axe dividend payments to investors, and performance bonuses to top level staff.
In a statement, the PRA said it welcomed decisions by the banks to comply with the request.
The regulator added that lenders’ bank sheets are strong and “more than sufficient to accommodate the combined simultaneous impact of severe UK and global recessions and a financial markets shock”.
The PRA also said: “We do not expect the capital preserved to be needed by the banks in order to maintain adequate capital positions, but the extra headroom should help the banks support the economy through 2020.”
It comes after the Bank of England cut interest rates and restarted quantitative easing in order to help cushion the economy against the fallout from the coronavirus.
The chancellor has also announced packages to help guarantee the income of millions of people at risk of losing their jobs.
Paying bonuses ‘not a good look when money is tight’
Share prices in banks have plunged this morning in response to the news.
Michael Hewson, chief market analyst at CMC Markets UK, said: “The banking sector is in the spotlight today after the Bank of England urged banks in the UK to cut their dividend pay-outs, and any buybacks in an attempt to conserve cash. The Bank of England also told the banks to cut bonuses for top executives.
“In response, all of the UK’s biggest banks have said they would be doing exactly that, with the big falls for HSBC and Standard Chartered in Asia markets, being replicated here in London trading this morning. Lloyds Banking Group, Barclays and Royal Bank of Scotland are all sharply lower in early trading.
“In short, paying out dividends and huge bonuses is not a good look at a time when money is likely to be tight, and the UK economy needs all the help it can get.
“There is also the likelihood that these banks may well have to absorb much higher credit losses, in the weeks and months ahead.”