Financial regulators have freed up about $500bn of capital for lenders around the world to help them absorb the impact of the Covid-19 pandemic, according to calculations by the Financial Times.
The FT has counted $492bn in capital relief by central banks and regulators from Washington to Hong Kong, which has mostly come from cutting extra capital buffers that were designed to strengthen lenders’ balance sheets after the 2008 crisis. Some regulators have ordered banks to conserve capital by freezing dividends and reining in bonuses, while others have postponed the introduction of tougher capitalisation rules or provided temporary exemptions in the calculation of capital requirements. The moves highlight how policymakers hope that banks will play a more constructive role than in the 2008 financial crisis, when they were widely blamed for being the source of many problems. In a way the banking sector has suddenly been transformed from a nominally capitalist enterprise into effectively a state entity. It’s temporary, but it is significant Nicolas Véron, Bruegel think-tank and Peterson Institute This time they are seen as a vital “transmission mechanism” for the trillions of dollars in aid that governments have unleashed to save the global economy from collapse. “The buffers were built up in order to be released, so this is a textbook way to use them,” said Nicolas Véron, a senior fellow at the Bruegel think-tank and the Peterson Institute for International Economics.
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