The simulation of the impact of COVID-19 on regulatory capital ratios will be one of the biggest challenges in the next weeks for banks. Both board members and supervisors are keen on understanding how the crisis will impact the capital ratios over the next three years. Based on the discussions with our clients, and the many years experience in RWA calculation and simulation tools we developed: (please click on picture to open)
PwC Pandemic Analysis and Scenario Simulation tool
Minimum capital ratios
The following blog post is part of the overview of supervisory measures in reaction to the Corona crisis:Supervisory measures in reaction to the Corona crisis – Overview.
According to the ad hoc measures taken by the ECB, banks can fully use their capital buffers during this time of financial distress, including the Capital Conservation Buffer (CCB) and the Pillar 2 Guidance (P2G). This means that banks are allowed to operate temporarily – until further notice – below the level of capital defined by the P2G and the CCB.
Besides, banks can partially use capital instruments that do not qualify as CET1 capital, e.g. Additional Tier 1 or Tier 2 instruments, to meet their Pillar 2 Requirement (P2R). This measure is effectively an early implementation of the standards laid down in CRD V that originally should entry into force in January 2021). Banks will therefore benefit from relief in the composition of capital for the P2R.
The following blog post is part of the overview of supervisory measures in reaction to the Corona crisis: Supervisory measures in reaction to the Corona crisis – Overview.
The Corona crisis affected banks not only in their daily business but also in their need to fulfil the regulatory requirements. Banks are now obviously confronted with a lot of open and urgent questions regarding specific regulatory issues. Therefore BaFin has set up a website with a comprehensive Q&A section around the regulatory issues in relation to the COVID-19 crisis and the countermeasures taken by the governments. The BaFin statements are directed to less significant institutions (LSI) in Germany. However, they might to some extent also serve as a guidance for significant institutions (SI) or banks in other jurisdictions, provided the statements are applicable and no contradicting statements were published by the respective competent authorities.
Since it is difficult to keep track with the frequently updated Q&As, we clustered and summarised BaFin’s most current key messages in the following section (as of April 22, 2020, to be updated continuously):