Regulatory reforms shield banks against Covid-19 shocks 

Friday July 30 2021

Dr Pablo Hernadez de Cos, the Basel Committee chairman and governor of the Bank of Spain


Regulatory reforms formulated to ensure that banks have adequate capital have helped the banking sector to absorb shock caused by Covid-19, according to Basel Committee on Banking Supervision. 

In a report, which assesses the effectiveness of post-crisis reforms titled: Early lessons from the Covid-19 pandemic on Basel reforms, the committee said that the banking system would have faced greater stress during Covid-19 had it not been for reforms implemented by a number of regulators since last year. 
Dr Pablo Hernadez de Cos, the Basel Committee chairman and governor of the Bank of Spain said: “Covid-19 serves as a reminder of the importance of having a resilient banking system underpinned by the global and prudential standards.”   

The Basel Committee report states that the spread of Covid-19 and the measures taken to control it resulted in large asset price declines, severe dislocations in funding markets and extraordinary economic contractions across the globe.
Therefore, necessitating reforms some of which have successfully shielded the banking sector from various shocks. 

The interventions, therefore, the report notes have been important in improving the quality as well as lifting levels of capital and liquidity flow held by banks, which have been important in absorbing a sizeable impact of the Covid-19-related disruptions, suggesting that the reforms have thus far achieved their broad objective of strengthening resilience of the banking system. 

The reforms, the report also notes, have been important in saving the banking sector greater stress as well as the sector through substantial increase in capital and liquidity flow. 
“No internationally active bank has failed or required significant public sector funding since the onset of the pandemic, though future losses may emerge as the pandemic remains ongoing,” the report reads in part. 

The report also notes that the global banking system has been able to complement and support monetary and fiscal authorities’ efforts to maintain economic activity during Covid-19 with most banks maintaining capital ratios that are well above minimum requirements and buffers. 
A number of reforms, including credit relief measures, have been instituted by regulatory authorities across the globe since last year.