A note on regulatory responses to COVID-19 pandemic: Balancing banks' solvency and contribution to recovery

Mohammad Bitar () and Amine Tarazi
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Mohammad Bitar: Nottingham University Business School, University of Nottingham, Jubilee Campus, Nottingham NG8 1BB, United Kingdom.

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Abstract: We see spikes in unemployment rates and turbulence in the securities markets during the COVID-19 pandemic. Governments are responding with aggressive monetary expansions and large-scale economic relief plans. We discuss the implications on banks and the economy of prudential regulatory intervention to soften the treatment of non-performing loans and ease bank capital buffers. We apply these easing measures on a sample of Globally Systemically Important Banks (G-SIBs) and show that these banks can play a constructive role in sustaining economic growth during the COVID-19 pandemic. However, softening the treatment of non-performing loans along with easing capital buffers should not undermine banks' solvency in the recovery period. Banks should maintain usable buffer in the medium-term horizon to absorb future losses, as the effect of COVID-19 on the economy might take time to fully materialise.

Keywords: COVID-19; non-performing loans; capital buffers; solvency; G-SIBs (search for similar items in EconPapers)
Date: 2020-10-12
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
Note: View the original document on HAL open archive server: https://unilim.hal.science/hal-02964598v1
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A note on regulatory responses to COVID-19 pandemic: Balancing banks’ solvency and contribution to recovery (2022)
Working Paper: A note on regulatory responses to COVID-19 pandemic: Balancing banks' solvency and contribution to recovery (2022)
Working Paper: A note on regulatory responses to COVID-19 pandemic: Balancing banks’ solvency and contribution to recovery (2022)
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