An economist has called for local banks to halt payments of bonuses and dividends, and to suspend share buybacks, to maximise their ability to help the community through the Covid-19 crisis.

Robert Stubbs, head of research at Seed Bermuda (Social, Economic and Environmental Development), made his suggestion yesterday in an open letter to Curtis Dickinson, the Minister of Finance, and Jeremy Cox, executive chairman of Bermuda Monetary Authority, the financial regulator.

Mr Stubbs cites an opinion piece in yesterday’s Financial Times, written by Sheila Bair, former head of the US Federal Deposit Insurance Corporation, the American banking regulator, in which she argues that central banks around the world should mandate suspensions of dividends, bonuses and share repurchases by systemically important banks to help shore up the capital base of the global banking system. Ms Bair was writing on behalf of the Systemic Risk Council of former regulators.

“To emphasise the potential efficacy of such a policy measure in addressing the current surge in liquidity demands, Ms Blair underscores the fact that, as a general rule of thumb, $1 of capital supports $16 of lending,” Mr Stubbs wrote.

“While perhaps only one of our local banks qualifies as a ‘globally systemic important bank’, I would suggest our financial and monetary authorities strongly consider applying such a restriction on each our local lending institutions.

“Given the distinct dichotomy in recent years between the financial health of our banks, their senior executives and shareholders and the extreme weakness of our domestic economy, such a stimulative monetary measure could well provide welcome relief to a significant number of cash-strapped Bermudian businesses and households, not to mention the Bermuda Government itself.

“Considering the unprecedented nature of the current crisis and the speed with which the Bermudian people bailed out our local lending institutions in the last financial crisis, our banks’ senior management and their shareholders may well be understanding of the need to impose such restrictions.

“And while in recent years many Bermudians have had to endure unprecedented levels of income inequality and poverty due to our interminable crisis, such emergency measures may well have the added benefit of at least partially restoring the island’s traditional sense of, ‘we’re all in it together’.”

HSBC Bermuda, Butterfield and Clarien, Bermuda’s main lenders, each cut their base lending rates last week by up to half a percentage point.

All of them then announced they would be willing to take measures to help customers put under financial strain as a result of the economic impact of the Covid-19 crisis. Butterfield took the most drastic action, announcing that it would automatically defer all personal loan and residential mortgage payments for three months unless customers requested otherwise, while the other banks said this was one of the solutions they could offer struggling customers who requested it.