MNI BRIEF: ECB Covid Buffer Relief Boosted Bank Credit - Study

European supervisors' decision to relax banks’ buffer requirements in response to the Covid-19 crisis increased bank credit supply and supported profitability, a study published by the ECB concludes, with additional support coming from national governments’ credit guarantee schemes. The expansionary effect of such measures was greatest, on average, for banks that were already more profitable, the authors conclude.

The ECB allowed banks to fully utilise capital and liquidity buffers, including Pillar 2 Guidance, from March 2020. Banks were required to reinclude central bank exposures in their leverage ratios from Apr. 1 this year, and are expected to operate above Pillar 2 Guidance from Jan. 1 2023