A dividend bonanza would send the wrong signal.
European banks should now consider this after the banking supervisors of the European Central Bank (ECB) have loosened their reins on distributions.
The fact that American banks have lost their market capitalization certainly has nothing to do with the reluctance to pay dividends imposed by the ECB during the pandemic.
The balance of power had shifted significantly before that.
Because of the dividend yield, hardly any investor opts for European bank stocks.
These are considered attractive to investors because they could be undervalued.
The board of directors can spruce up their institute with an attractive dividend payout for investors, but in the long run the only selling point is sustainable profitability.
It is understandable that the supervisory authority should continue to want moderate banks.
And it is good that the supervisors will step in when individual banks want to distribute more than they can afford.
The institutes are now being let off the short leash because certain facilities that were granted to them during the pandemic are no longer necessary.
Banks that were not dependent on this because they had sufficient equity buffers and liquidity reserves could have been given more leeway in terms of distributions beforehand.
But they too should be moderate.