The prudential response to the Covid-19 crisis · Percentage share of BCBS member jurisdictions....

The prudential response to the Covid-19 crisisClaudio BorioHead of the Monetary and Economic Department Basel, Switzerland, 30 June 2020

A unique crisis

2

3

Banks entered the crisis with higher capital…

Capitalisation of major international banks

0

5

10

15

20

25

9.5 11.5 13.5 15.5 17.5 19.5 21.5 23.5 25.5 27.5

%

2006Share of banks in the respective bucket: 2019 2006Median: 2019

Total capital ratio (% of risk-weighted assets)

A unique crisis

4

5

…facilitating the unprecedented prudential response

Countries taking prudential measures

Countercyclical buffer release

Other capital requirements

Payout restrictions

Liquidity requirements

Asset classification and provisioning

0 20 40 60 80 100%

Percentage share of BCBS member jurisdictions

6

Banks acted as shock absorbers

7

Credit expanded considerably more during this crisis than during the GFC

–4

–2

0

2

4

GFC Covid-19 GFC Covid-19

United States Euro area% pts

Pre-GFC = 1 year to Aug 2008; Pre-Covid = 1 year to Jan 2020GFCDifference in pre- and post-crisis average yoy credit growth: Covid-19

Three challenges

8

9

…facilitating the unprecedented prudential response

Countries taking prudential measures

Countercyclical buffer release

Other capital requirements

Payout restrictions

Liquidity requirements

Asset classification and provisioning

0 20 40 60 80 100%

Percentage share of BCBS member jurisdictions

10

Blanket dividend restrictions

11

Banks are under pressure…

Banks’ stock underperformRating outlooks deteriorateProvisions spike

0

18

36

54

72

90

2018 2019 2020

USD bn

United StatesOther AEs

Banks’ loan loss provisions:European AEsEMEs

60

68

76

84

92

100

Mar 2020 May 2020

19 Feb 2020 = 100

WorldEquity index: Banks

0

12

24

36

48

60

Mar 2020 May 2020

No of banks

Banks’ negative rating outlook

12

…and buffers are limited if the crisis persists

Depletion of capital under a severe stress scenario

0

4

8

12

Pre-crisis Severely adverse stress scenario

%

Minimum Basel III requirement (CET1) Capital buffers

13

Banks’ profitability is structurally low

0

1

2

3

02 04 06 08 10 12 14 16 18 20

Ratio

10th–90th percentilesBank price-to-book ratio: Average

Final considerations

14