In continuation of a series of Bulletins on the impact of COVID-19 pandemic, BIS published a brief report, or Bulletin, that examines financial resilience of households against the COVID-19 shock. The Bulletin takes stock of the policy interventions in select jurisdictions, along with their related implications. In conclusion, it outlines how the various temporary, targeted, and expansionary policy measures can strengthen financial resilience of households and businesses by transferring risks to the respective governments and banks.
This Bulletin documents, in three steps, cross-country variation in financial resilience of households. First, it looks at current levels of household debt and the corresponding debt service burdens. There is considerable variation, both between countries and within individual countries. Second, the Bulletin examines the adequacy of liquid buffers held by indebted households, given their debt service burdens. In several countries, households in the lower half of the net wealth distribution hold insufficient liquid buffers to weather a protracted spell of unemployment. In the third step, household financial resilience is compared with estimates of exposure to the COVID-19 shock, measured in terms of higher unemployment forecasts. This reveals that large exposures are not necessarily matched by buffers of commensurate size. The concluding section discusses how various policies can bolster resilience or alleviate the unemployment impact of the COVID-19 shock.
Policymakers have taken various measures to boost households’ resilience or alleviate the unemployment impact of the COVID-19 shock. Low interest rates and debt repayment moratoria bolster resilience by temporarily lowering debt burdens. In jurisdictions where debt service costs are more sensitive to interest rates (because mortgages, the bulk of household debt, are adjustable rather than fixed rate), rate cuts will pass through to debt servicing costs (for example, Australia, Korea, Spain, and the United Kingdom). Meanwhile, low interest rates will support the economic recovery, reducing the risk that income loss will be long-lasting. Most countries in the sample have loosened their monetary policy, with a few offering temporary debt relief.
An expansionary fiscal policy safeguards households against the prospect of income loss. Policymakers have implemented targeted income support schemes in several jurisdictions. They have also expanded access to unemployment benefits and social protection programs. In addition, authorities have introduced salary subsidies, which transfer (a share of) labor costs for locked-down employees from corporates to the government. Temporary moratoria on tax payments also help, by alleviating liquidity shortfalls. These interventions have (re)distributional implications. Debt repayment moratoria, for example, transfer some of the COVID-19 losses from households to banks (and other creditors). Expansionary fiscal measures entail inter-generational redistribution, with current debt burdens being transferred from the balance sheet of the current poor to that of the government and, thus, to future generations of taxpayers. The ultimate extent of interventions will, therefore, reflect political economy considerations as well as household exposure to the COVID-19 shock.
Keywords: International, Banking, COVID-19, Loan Moratorium, Loan Repayment, Credit Risk, Policy Actions, BIS
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).
The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.
The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.
The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.
The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).
The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.
The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.
The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.
In a letter to the federally regulated financial institutions and pension plans, the Office of the Superintendent of Financial Institutions (OSFI) published a summary of the feedback received to the January 2021 discussion paper on ways to address climate risks.