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How to release capital requirements during a pandemic? Evidence from euro area banks

Author

Listed:
  • Couaillier, Cyril
  • Reghezza, Alessio
  • Rodriguez d’Acri, Costanza
  • Scopelliti, Alessandro
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. JEL Classification: E61, G01, G18, G21

Suggested Citation

  • Couaillier, Cyril & Reghezza, Alessio & Rodriguez d’Acri, Costanza & Scopelliti, Alessandro, 2022. "How to release capital requirements during a pandemic? Evidence from euro area banks," Working Paper Series 2720, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20222720
    Note: 2396712
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    References listed on IDEAS

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    Cited by:

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    3. Acosta-Smith, Jonathan & Barunik, Jozef & Gerba, Eddie & Katsoulis, Petros, 2024. "Moderation or indulgence? Effects of bank distribution restrictions during stress," Bank of England working papers 1053, Bank of England.
    4. Marsh, W. Blake & Sharma, Padma, 2024. "Loan guarantees in a crisis: An antidote to a credit crunch?," Journal of Financial Stability, Elsevier, vol. 72(C).
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    6. Avezum, Lucas & Oliveira, Vítor & Serra, Diogo, 2024. "Assessment of the effectiveness of the macroprudential measures implemented in the context of the Covid-19 pandemic," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1542-1555.

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    More about this item

    Keywords

    bank capital requirements; coronavirus; countercyclical policy; credit register; macroprudential policy;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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