Britain’s Prudential Regulation Authority makes its intentions known

A man wearing protective face mask walks past the Bank of England in the City of London. Picture: AFP

In banking, every day that passes without incident is another day to be celebrated, and so it was on Tuesday when Commonwealth Bank, Suncorp and Bendigo and Adelaide Bank sent out nearly $4bn in interim dividend cheques.

What could possibly go wrong? A lot, judging by the UK experience.

After a hellish 2008 financial crisis, when the sector was partly nationalised to prevent a wholesale collapse, British bank investors are again doing it tough.

On Tuesday in the UK, Prudential Regulation Authority chief executive Sam Woods wrote to the CEOs of the country’s seven largest systemically important banks.

The tone was superficially polite with an underlying hint of menace.

Thanks, he said, for our recent discussions, and the “consideration given by you and your firm to suspending dividends and buybacks on ordinary shares until the end of 2020”.

“Should your board take such a decision the PRA would publicly welcome it,” Woods said, adding that the regulator also expected banks not to pay any cash bonuses to senior staff.

The PRA chief then showed the iron fist inside his velvet glove.

“Please confirm by 20:00 today whether or not your group is prepared to agree to this request,” he said.

“(We) stand ready to consider use of our supervisory powers should your group not agree to take such action.”

Woods helpfully included a draft PRA statement and “possible form of words for your statement, depending on your decisions on these matters”.

The draft PRA statement acknowledged shareholders would not receive any dividends, but said this was a “sensible precautionary step given the unique role that banks need to play in supporting the wider economy through a period of economic disruption, alongside the extraordinary measures being taken by the authorities”.

“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,” the statement said.

While Australia’s banks are among the strongly capitalised in the world, the timing was delicate for the interim dividend cheques of CBA (worth $3.5bn), Suncorp ($328m) and Bendigo ($151m).

Thankfully, it all went off without a hitch.