Policy-makers should impose counter-cyclical limits on how much banks can pay out to shareholders, a working paper published by the European Central Bank argues.

In Rethinking capital regulation: the case for a dividend prudential target, Manuel Muñoz looks at recent data on eurozone banks. He finds that since the global financial crisis, eurozone banks have tended to boost capital ratios by reducing their supply of loans. Over the same period, they have also shown reluctance to cut back on the