October 17, 2021

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European Banks Seek Virus Relief in Demands to Regulators

(Bloomberg) — European banks are asking regulators to roll back safety measures agreed after the last financial crisis so that they can deal with the impact of the coronavirus that’s crippling the region’s economy.

Their requests range from lowering liquidity and capital buffers to looser rules on bad loans, according to a letter published late Wednesday and sent to European Union authorities. The lenders are arguing the steps are needed so that they can “help the European economy navigate through the temporary difficulties” caused by the deadly virus. Bloomberg first reported the contents of the letter.

“To be truly effective, this endeavor will require close and intense coordination between public authorities and banks,” said the document by the European Banking Federation, a lobby group that represents about 3,500 firms and is currently helmed by UniCredit SpA Chief Executive Officer Jean Pierre Mustier.

The Bank of England on Wednesday introduced a series of emergency measures aimed at helping lenders and ensuring credit keeps flowing, and economists expect the European Central Bank to follow suit when it meets on Thursday. Measures by the ECB could include improved terms for long-term loans to lenders, a tool that could be used to encourage lending to small and medium-sized enterprises.

French Finance Minister Bruno Le Maire has called on supervisors to go easy on banks whose customers are struggling to repay their loans. That’s in line with one of the ideas put forward by the EBF, which called for measures allowing them to restructure the payment schedule of borrowers “without detriment to their prudential evaluation.”

The banks also urged supervisors to postpone increases in capital requirements resulting from an exercise meant to improve the models firms use to measure asset risk.

“This is not the right moment to lock capital that could otherwise be used to sustain the real economy,” the EBF said.

Stress Test

The Bank of England reduced a special capital buffer to give banks more room to lend. Its measures also included a program of funding for banks incentivizing them to lend to small and medium-sized companies. Based on a similar scheme in 2016 after the Brexit vote, that could provide more than 100 billion pounds of aid.

One policy that banks are less keen to change is this year’s stress test, whose results are scheduled to be published by the end of July. Firms are already working to supply regulators with information for the exercise, which examines how banks would fare in a major economic slowdown and plunge in markets, according to Jacqueline Mills, head of the Frankfurt office of the Association for Financial Markets in Europe, another industry group.

“Changing any of these timelines at this stage would need to be carefully considered so as to not unintentionally create further practical disruptions,” Mills said.

The German banking association issued its own statement on Wednesday, calling for relief from tougher accounting rules that took effect in 2018. The government in Berlin will meet with bank executives on Friday to discuss the economic fallout of the outbreak, according to people familiar with the situation.

(Updates with comment from AFME in ninth paragraph.)

–With assistance from Nicholas Comfort and Silla Brush.

To contact the reporters on this story: Sonia Sirletti in Milan at [email protected];Alexander Weber in Brussels at [email protected];Steven Arons in Frankfurt at [email protected]

To contact the editors responsible for this story: Dale Crofts at [email protected], Christian Baumgaertel, Ross Larsen

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