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Banks urge EU to ease capital rules to fight coronavirus fallout

Europe’s banks have called on European Union authorities to ease capital rules and other regulatory barriers to helping businesses struggling because of the coronavirus epidemic. 

The European Banking Federation (EBF) comprises national banking industry bodies from across Europe.

It has set out a three-stage plan in a letter to the European Union, European Central Bank and the European Banking Authority. 

It asks regulators “for assistance to be able to work constructively with borrowers… which will require flexibility to stem the regulatory-enforced barriers to finance borrowers in temporary struggle.” 

The industry body proposed a set of “immediate decisions” to avoid the flow of cash or liquidity to businesses and households drying up in coming weeks. 

These could be followed by a set of medium-term actions and other measures to “smooth” prudential or capital rule effects on lenders in the next year, the letter said. 

The ECB is due to meet today and faces pressure to take action to ease the impact of coronavirus on the economy after founding EU member Italy went into lockdown due to the epidemic. 

The Bank of England and the Federal Reserve have both made emergency interest rate cuts. 

EU authorities should enable a “moratorium tool” to help keep cash flowing to sound borrowers facing temporary challenges due to coronavirus, the EBF said. 

Regulators in the bloc could also improve the ability of banks to lend by easing the so-called counter cyclical buffer which is built up in good times for use during market shocks or downturns.

The Bank of England cut this buffer to 0% yesterday. 

The EBF said that other types of buffers imposed by national regulators on top of EU minimum requirements could also be eased. 

Regulators should also allow banks to divert the excess liquidity they hold above minimum requirements to non-financial businesses on a temporary basis, the EBF said. 

The ECB should also extend its long term funding to banks, known as the Targeted Longer-Term Refinancing Operations or TLTRO programmes, in time and scope, it added. 

“In the meantime, the EBF is working on a wider set of measures in more detail for the next months which we look forward to sending to you soon,” the letter said.

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