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Law360, London (April 15, 2020, 12:41 PM BST ) Capital relief measures announced by national watchdogs across the bloc in response to the coronavirus outbreak will free up more than €20 billion ($21.8 billion) for banks, the European Central Bank said Wednesday.
The ECB said that it supports measures taken by national regulators, which have been reducing requirements for holding capital in reserve since March. It aims to free up money, allowing banks to absorb losses and support lending during the spread of COVID-19.
The Bank of England led the way on March 11 when it cut its key interest rate for bank refinancing and temporarily removed a capital requirement.
Relief measures announced separately by regulators across the European Union include releasing or reducing the countercyclical capital buffer, a stash that banks are required to hold to protect themselves against market stress.
The ECB backed the measures on Wednesday, saying they would free up more than €20 billion of common equity Tier 1 capital — a group reserved for the highest-quality assets, such as shares — held by banks in the bloc.
"The European Central Bank supports the measures taken by euro area macroprudential authorities to address the impact of the coronavirus outbreak on the financial sector," the authority said in a statement. "The ECB has assessed the notifications submitted by national macroprudential authorities for each proposed measure … and has issued a non-objection decision, thereby endorsing the measures taken to reduce capital requirements."
The EU central bank is responsible for assessing macroprudential measures proposed by national regulators. The authority also has the power to impose more stringent measures to address risks to financial stability.
Other central banks that have released lenders from the need to pour more into their capital reserves, allowing them to pump money into the economy, include the Central Bank of Ireland. The Irish authority temporarily removed the countercyclical buffer, saying it was designed to be dropped when banks face economic risks so that homeowners and businesses can use the money.
Europe has also relaxed the rules, and Scandinavian central banks have set out measures.
In a separate move, the European Banking Authority said Wednesday that EU banks are holding better-quality assets in their coffers. The ratio of common equity Tier 1 capital that they have in reserve reached 14.8% at the end of 2019, compared with 14.4% in the third quarter of last year.
--Editing by Ed Harris.
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