A note on regulatory responses to COVID-19 pandemic: Balancing banks’ solvency and contribution to recovery

Bitar, Mohammad; Tarazi, Amine

Abstract

We discuss the implications on banks and the economy of prudential regulatory intervention to soften the treatment of non-performing exposures (NPEs) and ease bank capital buffers. We apply these easing measures on a sample of Globally Systemically Important Banks (G-SIBs) and show that these banks can play a constructive role in sustaining economic growth during the COVID-19 pandemic. In addition, an empirical analysis shows that prudential regulatory responses to COVID-19 along with high regulatory capital and low non-performing loans ratios are positively associated with economic growth. Thus, banks should maintain high capital ratios in the medium-term horizon to absorb future losses, as the effect of COVID-19 on the economy might take time to fully materialize.

Citation

Bitar, M., & Tarazi, A. (2022). A note on regulatory responses to COVID-19 pandemic: Balancing banks’ solvency and contribution to recovery. Journal of Financial Stability, 60, Article 101009. https://doi.org/10.1016/j.jfs.2022.101009

• Journal Article Type: Article
• Acceptance Date: Apr 13, 2022
• Online Publication Date: May 4, 2022
• Publication Date: Jun 1, 2022
• Deposit Date: May 5, 2022
• Publicly Available Date: Nov 5, 2023
• Journal: Journal of Financial Stability
• Print ISSN: 1572-3089
• Electronic ISSN: 1572-3089
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 60
• Article Number: 101009
• DOI: https://doi.org/10.1016/j.jfs.2022.101009
• Keywords: COVID-19; NPEs; solvency; economic growth; G-SIBs †Corresponding author
• Public URL: https://nottingham-repository.worktribe.com/output/7954687
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S1572308922000365?via%3Dihub
• Additional Information: This article is maintained by: Elsevier; Article Title: A note on regulatory responses to COVID-19 pandemic: Balancing banks’ solvency and contribution to recovery; Journal Title: Journal of Financial Stability; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jfs.2022.101009