How to Release Capital Requirements During a Pandemic? Evidence from Euro Area Banks

36 Pages Posted: 20 Sep 2022

See all articles by Cyril Couaillier

Cyril Couaillier

Banque de France; European Central Bank (ECB)

Alessio Reghezza

European Central Bank (ECB)

Costanza Rodriguez d’Acri

European Central Bank (ECB)

Alessandro Scopelliti

KU Leuven, Department Accounting, Finance and Insurance; University of Zurich - Department Finance

Date Written: September 1, 2022

Abstract

This paper investigates the impact of the capital relief package adopted to support euro area banks at the outbreak of the COVID-19 pandemic. By leveraging confidential supervisory and credit register data, we uncover two main findings. First, capital relief measures support banks' capacity to supply credit to firms. Second, not all measures are equally successful. Banks adjust their credit supply only if the capital relief is permanent or implemented through established processes that foresee long release periods. By contrast, discretionary relief measures are met with limited success, possibly owing to the uncertainty surrounding their capital replenishment path. Moreover, requirement releases are more effective for banks with a low capital headroom over requirements and do not trigger additional risk-taking. These findings provide key insights on how to design effective bank capital requirement releases in crisis time.

Keywords: bank capital requirements, coronavirus, countercyclical policy, credit register, macroprudential policy

JEL Classification: E61, G01, G18, G21

Suggested Citation

Couaillier, Cyril and Reghezza, Alessio and d’Acri, Costanza Rodriguez and Scopelliti, Alessandro, How to Release Capital Requirements During a Pandemic? Evidence from Euro Area Banks (September 1, 2022). ECB Working Paper No. 2022/2720, Available at SSRN: https://ssrn.com/abstract=4220377 or http://dx.doi.org/10.2139/ssrn.4220377

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Alessio Reghezza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Costanza Rodriguez D’Acri

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Alessandro Scopelliti

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

University of Zurich - Department Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

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