BIS国际清算银行-Buffering-Covid-19-losses---the-role-of-prudential-policy_9页_717kb

BIS Bulletin No 9 Summary: Buffering Covid-19 Losses – the Role of Prudential Policy

Core Content

This BIS Bulletin explores the role of prudential policy in mitigating the economic fallout of the Covid-19 pandemic. It emphasizes the importance of prudential buffers in enabling banks to continue supporting credit flows to the real economy, while also preserving their resilience during and after the crisis.

Main Policy Instruments

The primary tools of prudential policy include:

• Capital Conservation Buffer (CCoB): A global buffer that cannot be deactivated, designed to prevent banks from running down capital too quickly.
• Systemically Important Bank (SIB) Buffers: Applied to G-SIBs and D-SIBs, these buffers aim to enhance the resilience of banks whose failure could destabilize the financial system.
• Countercyclical Capital Buffer (CCyB): A buffer that can be deactivated during periods of excessive credit growth, and is calibrated at the jurisdictional level.
• High-Quality Liquid Assets (HQLA): A global liquidity buffer required under the Basel III Liquidity Coverage Ratio (LCR), used to meet short-term liquidity needs.
• Supervisory Buffers: Jurisdiction-specific buffers that may be activated or deactivated depending on the regulatory design.

Key Takeaways

• Prudential buffers complement monetary and fiscal policies by allowing banks to maintain lending capacity during the pandemic.
• Policymakers must ensure that banks are both capable and willing to use buffer flexibility for lending, not for discretionary payouts.
• Risk-sharing between banks and the public sector is crucial to reduce capital costs and increase lending willingness.
• Buffer release should not undermine medium-term resilience, as losses from a severe recession may take years to materialize.
• Regulatory design plays a key role in determining how buffers can be used, with some buffers being more flexible than others.

Role of Prudential Policy

Prudential policy faces a balancing act between supporting lending during the crisis and preserving the financial system’s ability to rebound post-crisis. This balance is critical to avoid a financial crisis that could worsen the macroeconomic impact.

Capacity and Willingness

• Capacity: Banks can only expand their balance sheets if regulatory requirements are the binding constraint. If stakeholders’ risk perceptions are the constraint, buffer release may not lead to increased lending.
• Willingness: Banks may prefer to use buffer flexibility for payouts (e.g., dividends, share buybacks) if they perceive it as a sign of financial health. This can reduce the effectiveness of prudential measures in supporting credit.

Policy Support

• Supervisory actions can mitigate payout incentives by using moral suasion or imposing restrictions on distributions.
• Monetary policy can also increase the appeal of balance sheet expansion by reducing funding costs and improving collateral acceptance.
• Public backstops (e.g., government guarantees) are essential to reduce capital costs and support lending, especially in the face of severe downside risks.

Medium-Term Resilience

• Buffers should not be depleted entirely, as they are needed for the recovery period.
• Historical data (Graph 1) indicates that credit losses remain high for years after a recession ends.
• Integrated policy response combining prudential, monetary, and fiscal tools is necessary to support a sustainable recovery.

Limitations of Buffer Release

• Buffer release alone is unlikely to fully compensate for capital erosion caused by the recession.
• Pre-Covid-19 buffers were relatively low (e.g., CCyB at 2.5% of risk-weighted assets), and even tripling these would only partially offset losses.
• Fiscal and monetary support must be combined with prudential measures to ensure long-term resilience.

Conclusion

Prudential policy plays a supportive role in the broader economic response to the pandemic. It must be carefully designed and implemented to ensure that banks can continue to provide credit while maintaining their ability to absorb future losses. A comprehensive and integrated approach is essential to avoid financial sector distress from undermining the recovery.

References

• Adrian, T, J Kiff and H S Shin (2018): "Liquidity, leverage, and regulation ten years after the global financial crisis"
• Bank of England (2019): Financial Stability Report
• Basel Committee on Banking Supervision (BCBS) (2011–2020): Various Basel III-related publications
• Borio, C, M Farag and N Tarashev (2020): "Post-crisis international financial regulatory reforms: a primer"
• Caprio, G, W Hunter, G Kaufman and D Leipziger (1998): "Preventing bank crises: lessons from recent global bank failures"
• Claessens, S., A Kose, L Laeven and F Valencia (eds) (2014): "Financial crises: causes, consequences, and policy responses"
• Egrungor, E and K Cherny (2009): "Sweden as a useful model of successful financial crisis resolution"
• European Banking Authority (EBA) (2018): "EU wide stress tests"
• Federal Reserve Board (2019): "Comprehensive capital analysis and review"
• Landier, A and K Ueda (2009): "The economics of bank restructuring: understanding the options"
• Pesola, J (2011): "Joint effect of financial fragility and macroeconomic shocks on bank loan losses"
• Yang, J and K Tsatsaronis (2012): "Bank stock returns, leverage and the business cycle"