Jose Vinals, a senior official in IMF,told a news conference that banks should hold the equity buy backs and the dividend payouts. They should resist these temptations,as they have started to make profits ,so to conserve capital, adds the executive.
A vital statement at this stage, when the banking sector is turning around. This renaissance was enabled by the stimulus package and regulations. The injection of billions into the industry has revived the dying functionaries. The call by the official is a significant reminder, compelling the executives to work in a disciplined ,diligent method.
Deploying funds in the equity buy backs should be restricted. This measure would thoroughly ensue building up of the reserves. The conservation of capital can be programmed by declining bonus,by stalling hike in pay packages, by compressing the internal expenditure of the institutions. Cost cutting in establishment charges, in adopting frugal norms in travelling , simplicity in conducting meetings., should also be implemented to bring down the outflow of funds.
Vinals suggestion to stop the dividend pay outs ,propounds a serious harm to the investor, who did a service to the bank, by putting his funds in the stocks. He did so with a futuristic desire, of getting good returns. If that right is denied to him,what will be his status?His money gets locked up He has to limit his spending. Is it not a severe punishment?He has to face this ordeal, for no fault of him.
X commits a sin. But Y is penalised. The banking executives did all incredible manipulations. They emptied the Bank’s treasury, but filled their own coffers.They enjoyed hefty salary, relished in high perquisites , revelled in unaccounted money ,brought disgrace to the institutions as such ,the capital got eroded, the reserves depleted resulting in a crash of the financial system. All these while, the shareholder ,unable to control the illegalities , sat with hands folded in mute shock.
He started feeling happy, when the companies in which he invested , achieved a refreshing look with their stability reinstalled,and profits accruing. He expects a moderate dividend. But , I anticipate , that small assuage would be stoutly denied by the officials. He has to once again resign to the role of a dumbbell.
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