(Bloomberg) -- A bid by senior regulators to soften the European Central Bank’s stance on lenders’ dividends and share buybacks is faltering amid pushback from hardliners and new Supervisory Board Chair Claudia Buch.

Board members who wanted to make it easier for banks to pay out excess capital have so far struggled to convince their peers, said people familiar with the matter who asked not to be identified as the discussions were private. Crucially, Buch has signaled that she wants to stick with the status quo after having assumed the board’s leadership this year, said some of the people.

Shareholder payouts have long been a key point of contention between the ECB and banks in the region, which argue that the supervisor’s strict line on payouts is partly to blame for their poor valuations. Bloomberg reported in November that several regulators shared that view and were pushing to lower the capital bar that individual banks have to meet for payouts, as well as scrap a time-consuming approval process for big share buybacks. 

Yet the board has shown little appetite to change the ECB’s approach, according to the people familiar with the matter. Some of the officials told Bloomberg they’re concerned about allowing too much capital to leave the banking system. Others defended the flexibility they currently have as being necessary to tailor their approach to the risks individual banks are facing.

An ECB spokesman declined to comment. The board, which is made up of representatives from national authorities as well as ECB-appointed officials, plans and carries out the ECB’s supervisory tasks.

While the industry has recently benefited from a surge in interest rates that has allowed many banks to raise payout pledges, most lenders still trade at a discount to their Wall Street peers. Societe Generale SA Chairman Lorenzo Bini Smaghi has been one of the ECB’s sharpest critics, saying that its actions and those of other European authorities have made banks less attractive in the eyes of shareholders.

Read more: ECB Faces Bank Payouts Battle as Top Watchdog Enria Departs

“The cumbersome process for authorization process for conducting share buybacks has created the impression that the ECB aims at exercising a tight oversight role or even a moral suasion role over banks’ dividend policy,” he said at a conference in Frankfurt earlier this year.

Buch told investors at a conference organized by Morgan Stanley last month that the ECB does keep an eye on the market value of banks.

“We all understand that banks have to pay their owners,” she said. Still, the watchdog also has to “consider future risks and not all of this is captured in the valuations.”

The ex-Bundesbank vice president has shown a readiness to listen to the ideas of fellow supervisory board members, said some of the people familiar with the matter. Yet her colleagues have the clear impression that she doesn’t support softening the ECB’s stance on payouts, they said.

In public, Buch has also echoed the stance of her predecessor that lenders need to be able to show they can keep up their financial strength even if the economy sours. 

“We of course also look at the longer-term capital standing of the banks to make sure that sufficiently adverse scenarios are taken into consideration,” she said last month.

That’s a key phrase that the proponents of a laxer approach had criticized as not transparent and providing the ECB with too much leeway to lean on banks to shrink payouts.

--With assistance from Arno Schütze.

©2024 Bloomberg L.P.