Uncertain economic prospects, falling prices on the real estate markets and unclear monetary policy signals – the outlook for the major European banks is mixed. Nevertheless, from Barclays and Unicredit to Banco Santander, they are currently outdoing each other with extensive capital return plans. The local banks are also joining in: Both Deutsche Bank and Commerzbank want to spoil their shareholders with lavish dividends and buyback programs in the coming years.

This is likely to go down only moderately well with the population, most of whom still have little affinity for shares. Dividend payments from banks are viewed particularly critically in this country. And for good reason: the major financial crisis of 2008 made it clear that banks are not like any other company. If they are driven into the wall by their management, they cannot simply be allowed to go bust without risking profound economic damage. This realization has cost taxpayers billions.

Against the backdrop of last year's banking quake, the Benko shock and the risk of contagion from the US commercial real estate crisis for local institutions, the mistrust is understandable. Real estate crises are always also banking crises – and they have the unpleasant characteristic of taking long to digest.

But we are no longer living in 2008 and banks are far better capitalized today than they were before the financial crisis. Long gone are the days when Josef Ackermann was thinking out loud about a return on equity of 25%, which could only be achieved with very high leverage, thus increasing the pressure on his colleagues in the neighbouring bank towers.

To ensure that governments never have to bail out their banks again to prevent a financial meltdown, the industry has been regulated more strictly than almost any other. Banks today are not only much better capitalized, but can no longer conduct certain business at all because the capital requirements are simply too high. Whether this is enough to protect the world from new financial crises is another matter. Perhaps the riskier businesses have simply migrated to less regulated segments of the financial sector, which will generate the next crisis at some point.

Banks, on the other hand, have not only had to restructure their business models as a result of regulatory intervention. The attempt to tame them has also affected their attractiveness for investors. This is only logical, as returns correlate with risk. The market seems to have become accustomed to the fact that even highly profitable banks have a price-to-book ratio of less than 1. In other sectors, this is seen as a solid vote of no confidence in the management.

The banks have very little they can do about this. Of course, they can and should cut costs, which European banks in particular have done with some success in recent years. They can try to develop new business areas in order to find a better balance between interest and commission income. However, in order to secure the favour of investors, they will also have to allow their shareholders to participate in their business success.

Now that rising interest rates have brought record results for most German banks, higher capital return ratios are therefore perfectly acceptable – provided that the institutions assess their own situation realistically. On the other hand, overly fixed targets for the future should be viewed critically. These may appeal to investors. However, by creating automatisms with distribution obligations, banks risk interference from the supervisory authorities. If the next black swan emerges, there may be a ban on distributions, as was the case during the pandemic.