The COVID-19 (Coronavirus) could have a colossal impact on the world’s financial market, the European Banking Authority has offered advice on mitigating challenges.
The EBA, European Central Bank and national competent authorities (NCAs) are launching a joint effort to alleviate the immediate operation burden for banks at this time. It has recommended NCAs to make full use of the flexibility embedded in the regulatory framework to support the banking sector.
It believes the key focus should be put on addressing operational challenges banks may face. From that, it has decided to postpone the EU-wide stress test exercise to 2021. This will allow banks to focus on and ensure continuity of their core operations, including support for their customers.
As for 2020, the regulator will carry out an additional EU-wide transparency exercise to provide updated information on banks’ exposures and asset quality to market participants.
Furthermore, the EBA has recommended the NCAs to plan supervisory activities, including on-site inspections in a pragmatic and flexible way, and possibly postpone those deemed non-essential. It suggests NCAs could give leeway in the remittance dates for certain areas of supervisory reporting, as long as it doesn’t impact their ability to monitor the banks’ financial and prudential situation.
The regulator also stated there are provisions set out in the regulatory framework which ensures banks build up adequate capital and liquidity buffers. These are designed to help absorb losses and ensure continued lending to the economy during a downturn.
It also suggests banks should also follow prudent dividend and other distribution policies, including variable remuneration.
NCAs have been urged, when appropriate, to use these flexibilities.
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