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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Abstract: We discuss the implications on banks and the economy of prudential regulatory intervention to soften the treatment of non-performing exposures (NPEs) 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. In addition, an empirical analysis shows that prudential regulatory responses to COVID-19 along with high regulatory capital and low non-performing loans ratios are positively associated with economic growth. Thus, banks should maintain high capital ratios in the medium-term horizon to absorb future losses, as the effect of COVID-19 on the economy might take time to fully materialize.

Date: 2022-06
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Published in Journal of Financial Stability, 2022, 60, pp.101009. ⟨10.1016/j.jfs.2022.101009⟩

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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 (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04793088

DOI: 10.1016/j.jfs.2022.101009

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