As expected, the Group o f Central Bank Governor s and Heads of Supervision (GHOS) that governs the Basel Committee has supported a set of measures in order to ease the capital requirements for European banking with the aim of reducing the impact of COVID-19 in the liquidity of banking system. These measures consist basically of a one-year extension (from 2022 to 2023) to meet the minimum capital requirements imposed in the wake of the financial crisis and which has resulted in a withdrawal of credit appetite by the banks.
Pablo Hernández de Cos, Spanish Bank Governor and President of the Basel Committee, explained in his statement that the group is committed to do everything in their hands to reduce the impact of Covid-19. They are willing to introduce additional support measures to the economy if needed. This will undoubtedly contribute to further credit expansion and should help to provide liquidity to companies and the private sector in general, together with the guarantee line worth 100 billion euros granted to the bank through the ICO lines, which the affiliated banks are already implementing.
The increasing capital requirements and the MREL imposed on the Banking as a consequence of the financial crisis have generated a capital reserve 3 times larger than it was before 2007. The aims of these MRELs are to prevent another financial crisis and be able to address critical situations like the current one. The last word belongs to financial entities which will have bigger capacity available to provide liquidity to the private sector.
Source: BIS – Governors and Heads of Supervision announce deferral of Basel III implementation to increase operational capacity of banks and supervisors to respond to Covid-19