A Note on Regulatory Responses to COVID-19 Pandemic: Balancing Banks’ Solvency and Contribution to Recovery

21 Pages Posted: 19 Jun 2020

See all articles by Mohammad Bitar

Mohammad Bitar

Nottingham University Business School; University of Nottingham

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: June 19, 2020

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

JEL Classification: G18, G21, G28

Suggested Citation

Bitar, Mohammad and Tarazi, Amine, A Note on Regulatory Responses to COVID-19 Pandemic: Balancing Banks’ Solvency and Contribution to Recovery (June 19, 2020). Available at SSRN: https://ssrn.com/abstract=3631131 or http://dx.doi.org/10.2139/ssrn.3631131

Mohammad Bitar (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

University of Nottingham ( email )

Nottingham, Québec
Canada

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

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