Closed factories and shops, cancelled events, travel bans, wide-ranging curfews – the Corona crisis turns out to have alarming and sudden effects on the global economy. The dramatic meltdown of leading stock markets in recent weeks seems to reflect the fears of a long-lasting recession. For some people, this brings back bad memories of the financial crisis back in 2008. Although “this time is different” [credits to Reinhart/Rogoff], the financial sector is facing severe second-order effects, including:
- A unprecedented wave of distressed and defaulted clients leading to a sharp increase in loan loss provisions and thus serious P&L hits
- Deterioration and high volatility of prices for bonds and equities that serve, e.g. as liquid assets or collateral
In addition, banks themselves need to cope with multiple operational challenges resulting from the extensive shutdown, e.g. working from home as a trader within a highly regulated environment or managing ongoing on-site inspections and important implementation projects “remotely”.
Therefore, besides several short-term measures to support companies, employees and self-employed people, the governments and respective competent authorities also agreed on various temporary reliefs for banks to ensure that they “can continue to fulfil their role to fund households and corporations amid the coronavirus-related economic shock to the global economy” [ECB].
PwC is committed to to be side by side with our clients in these difficult times, in any way possible to support institutions deal with the many challenges they are facing. Part of this commitment includes informing our clients proactively and support analyzing the potential impact of this crisis and related measures. Through this Regulatory Blog we will continuously provide you with updates on regulatory and supervisory measures and share our views on how these could affect banks. (this time only in English since we have a steadily growing number of international readers – thank you for your understanding!). Please don’t wait to contact us whenever you need our support – be it in understanding and analyzing the impact of the crisis and the potential measures or in coping with the operational challenges in these extraordinary times. And most important: Please stay healthy and take good care of you and your loved ones!
The following sections of this post serve as a general overview that will be updated continuously. For more details, we will refer to separate posts, slides, etc. that will be published regularly.
Update as of March 27, 2020
What’s new in this update?
- We included various illustrations to highlight the impact of the crisis and the respective supervisory measures
- We added an overview of global reactions and measures taken by governments and supervisory authorities
- We included first remarks on actions that need to be taken by banks to assess the individual impact
- Due to several requests, we also give an indication where we could provide support with tools, know-how or in any other way
Overview of supervisory reactions (as of March 27, 2020)
Reaction from the Basel Committee on Banking Supervision
The Basel Committee on Banking Supervision (BCBS) supports the objectives of the measures taken by member jurisdictions and highlights in its latest press release from March 20, 2020, that members have the flexibility to undertake further steps if needed under the current Basel III framework. The BCBS also acknowledges the extraordinary circumstances and announced that, in the immediate term, the consultation on all policy initiatives will be suspended and all outstanding jurisdictional assessments planned in 2020 under its Regulatory Consistency Assessment Programme will be postponed. The BCBS is considering additional measures aimed at supporting the financial resilience of banks and the operational resilience of both the banking and supervisory community.
Reaction of the ECB supervision
On March 12, 2020, following intensive bilateral communication with the significant institutions, the ECB publicly announced several actions to be taken in reaction to the Corona crisis (see also our separate blog post in German). These measures were activated, refined and extended by ECB’s latest press release from March 20, 2020, which comes with a detailed and continuously updated FAQ section on the specific measures.
Reaction from National Supervisors
In Germany, BaFin also set up a particular website with the most recent updates on the Corona crisis from a supervisory perspective, including the measures introduced by the ECB supervision that need to be formally implemented on the national level for the less significant institutions.
The PwC network firms are continuously collecting the global reactions of governments, central banks and supervisory authorities to the COVID-19 crisis. Please find below our current collection as of March 24, 2020 (please note that this is a non-exhaustive list that will be updated regularly).(please click to open pdf)
Overview of topic-related measures (as of March 26, 2020)
The following sections serve as an overview of specific measures taken by the various authorities and the respective discussions or challenges. To provide greater clarity we structured this overview topic-related (not chronologically). As soon as there are updates, we will add these accordingly and highlight the amendments.