The European Central Bank (ECB) will ease regulations for the major banks it supervises in light of the “exceptional circumstances” of the Covid-19 pandemic, it announced on Thursday.
Banks have to communicate what’s known as their leverage ratio and its components to national supervisory authorities. This leverage ratio indicates how much money banks can lend relative to how much the bank devotes to its own assets.
The largest banks also have to report to the ECB, which supervises them directly. The ECB decided to temporarily exclude certain central bank exposures from the leverage ratio, it said.
The assets that will be excluded from the calculation of the leverage ratio include “coins and banknotes as well as deposits held at the central bank,” the ECB said.
“The situation brought about by the coronavirus (Covid-19) pandemic has affected all euro area economies in an unprecedented and profound way,” the ECB’s Governing Council argued in a press release.
Based on data from the end of March 2020, the ECB’s easing would “increase the overall debt ratio by about 0.3 percentage points to 5.36%,” according to the statement. This would free up a total of €73 billion in assets for the banks, an ECB spokesman told AFP.
The requirement for a 3% leverage ratio will become binding again at the end of June 2021, he said.
The measure ensures that banks continue to lend money on good terms to households and businesses despite the devastation caused by the coronavirus in the economy.
The Brussels Times