Rate of infections, containment measures, unwinding of support measures and weak recovery heighten risks to banking system.
Banks could get more regulatory relief should the Covid-19 pandemic prove particularly damaging over the winter period with many employees having to work from home again, the Basel Committee on Banking Supervision said.
Following meetings on September 14, 18 and 25 to take stock of Covid-related risks to the global banking system, the Committee said the outlook for global financial stability continues to be uncertain.
The Committee noted the banking system is more resilient than before the 2007 financial crisis
The Committee said it is ready, if needed, to pursue additional measures for the banking system and will continue to work closely with the Financial Stability Board (FSB) and global standard-setting bodies.
It warned that the rate of infections, containment measures, unwinding of support measures and a protracted recovery period could heighten risks to the banking system. It said the banking system’s operational resilience will continue to be tested by the increase in remote working and banks’ reliance on technology and third-party service providers. The Committee is currently consulting on operational resilience until November 6.
Basel III resilience
However, the Committee noted that the banking system is now more resilient than it was before the 2007-9 global financial crisis, thanks partly to the Basel III reforms.
As such, the Committee reiterated its previous guidance that banks should make use of their capital and liquidity buffers during this crisis to absorb financial shocks and to support the real economy by lending to creditworthy borrowers. Importantly, it added that banks will be given sufficient time to restore buffers, taking account of economic and market conditions as well as the circumstances of individual banks.
Meanwhile, the Committee approved the results of its annual assessment of global systemically important banks (G-SIBs) which will be passed to the FSB before it publishes the 2020 list of G-SIBs. The Committee also approved an updated work plan to evaluate its post-crisis reforms, which will incorporate lessons learned from the Covid-19 crisis.
This article first appeared in The Banker’s sister publication Global Risk Regulator.