Banks can now unleash a dividend party – but the optics wouldn’t be good

Swimming in capital and with dividend restrictions gone, banks have plenty to give shareholders

Let the dividend bonanza in the banking sector begin? The Bank of England on Tuesday removed its Covid guardrails" on distributions to shareholders, and boards now have a decision to make. Do they shower their investors with cash, in effect making up for nine dividend-free months in 2020 and the token payments that were made thereafter? Or do they conclude that the final bill for Covid-related defaults isn't yet clear and, in any case, a display of dividend excess at this point would look terrible?

There's little doubt the banks could afford to let rip, up to a point. The Bank's Prudential Regulation Authority was correct to impose a dividend ban at the outbreak of the pandemic - as Sam Woods, its boss, said, it couldn't allow 7bn of capital to leave the system when the economic outlook was so unclear - but it is also true that loans have not soured at anything like the rate originally feared.