The Basel Committee on Banking Supervision held a conference call on 20 March 2020 to discuss the impact of the rapid worldwide spread of the coronavirus disease (Covid-19) on the global banking system.
The spread of Covid-19 has reached a critical phase and is having an increasingly significant impact on economic activity. The Basel III standards have strengthened the resilience of the banking system over the past decade. The global banking system has significantly higher levels of capital and liquidity, and is therefore in a stronger position to absorb shocks and mitigate interruptions to banking services. Banks and supervisors must remain vigilant in light of the evolving nature of Covid-19 to ensure that the global banking system remains financially and operationally resilient.
Member jurisdictions are pursuing a range of regulatory and supervisory measures to alleviate the financial stability impact of Covid-19. These measures target the provision of lending by banks to the real economy and facilitate banks' ability to absorb losses in an orderly manner. The Committee supports the objectives of these measures and notes that members have flexibility to undertake further measures if needed.
The Basel III framework includes capital and liquidity buffers that are designed to be used in periods of stress. These include the capital conservation buffer and, by extension, the countercyclical capital buffer and buffers for systemically important banks. They also include banks' stock of high-quality liquid assets (HQLA). Using capital resources to support the real economy and absorb losses should take priority at present over discretionary distributions. HQLA stocks should be used to meet liquidity demands. Many supervisors are already encouraging banks to make use of these tools, which allow for flexibility in responding to the current circumstances.
The Committee is continuing to assess and address the banking and supervisory implications of Covid-19, and is actively coordinating with the Financial Stability Board and other standard setting bodies on cross-cutting financial system issues. In the immediate term, the Committee is suspending consultation on all policy initiatives and postponing all outstanding jurisdictional assessments planned in 2020 under its Regulatory Consistency Assessment Programme.
In the coming days, the Committee will consider additional measures aimed at supporting the financial resilience of banks and the operational resilience of both the banking and supervisory community during these unprecedented times.
Re-disseminated by The Asian Banker