There are valid and important arguments on both sides: on the one hand, the COVID-19 crisis is still ongoing, and uncertainty remains about
the future impact on the economy and financial institutions, with a risk of further worsening of health and economic conditions. Markets and authorities lack information on the long-term impact of the crisis on the financial sector and credit markets. Financial
institutions also remain strongly dependent on public policy support. This calls for an approach that aims at maintaining a sufficiently high level of capital to mitigate systemic risk and contribute to economic recovery. On the other hand, the uncertainty
has a different character now than it had in the spring: we have moved from unknown unknowns to known unknowns. Further, regulators are aware of the importance of distributions in enabling financial institutions to raise capital externally, as rewarding investors
for their investment is critical for the long-term sustainability of financial institutions and markets. Extending the pay-out restriction with an expectation that it will be lifted in a few quarters could result in perverse incentives in that banks
will hold back on lending and risk-taking to save capital space to pay out later, the opposite to what is the intention. Finally, restricting proper market functioning to allow for reallocation of capital across sectors and within the banking sector is certainly
not in line with the need for further restructuring and consolidation in the sector. So, there is a clear trade-off or – in line with a long-standing tradition in the dismal science – good arguments on both sides. And beyond the economic arguments,
there is the issue that the recommendation is not legally binding, so a degree of moral suasion is needed, which might carry only so far.