12 March 2020

EBA statement on actions to mitigate the impact of COVID-19 on the EU banking sector

The EBA, along with national competent authorities (CAs) and the ECB is coordinating a joint effort to alleviate the immediate operational burden for banks at this challenging juncture.

Addressing any operational challenges banks may face should be the priority.  The EBA 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. For 2020, the EBA will carry out an additional EU-wide transparency exercise in order to provide updated information on banks’ exposures and asset quality to market participants.

In addition, the EBA recommends CAs to plan supervisory activities, including on-site inspections, in a pragmatic and flexible way, and possibly postpone those deemed non-essential. CAs could also give banks some leeway in the remittance dates for some areas of supervisory reporting, without putting at stake the crucial information needed to monitor closely banks’ financial and prudential situation.

A number of provisions in the regulatory framework ensure that banks build up adequate capital and liquidity buffers. These buffers, including macroprudential ones, are designed to be used in order to absorb losses and ensure continued lending to the economy during a downturn. Banks should also follow prudent dividend and other distribution policies, including variable remuneration.

CAs are encouraged, where appropriate, to make full use of the flexibility already embedded in the existing regulatory framework. The ECB-Banking Supervision’s decision to allow banks to cover Pillar 2 requirements with capital instruments other than common equity tier 1 (CET1) is an example. The use of Pillar 2 Guidance is another way to ensure that prudential regulation is countercyclical and banks can provide the necessary support to the household and corporate sectors.

The liquidity coverage ratio (LCR) is also designed to be used by banks under stress. Supervisors should avoid any measures that may lead to the fragmentation of funding markets.

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