BIS Bulletin Examines Bank Resilience During COVID-19 Crisis
The Bank for International Settlements (BIS) published a Bulletin that compares phases of the COVID-19 crisis with the Great Financial Crisis to assesses resilience of the largest banks through the concept of a market-adjusted, risk-weighted capital ratio (MARC) as well as through the outcome of stress tests. The MARC combines information from regulatory book value metrics with market valuation measures to provide a composite view on bank resilience. The analysis reveals that, while market valuations have largely recovered to pre-pandemic levels, a weaker tail of banks continues to struggle with anemic profitability and potential for credit losses. The resilience of these banks could be tested if credit losses materialize, following the winding down of policy support.
The analysis, which covered 360 of the largest 500 institutions from 50 jurisdictions, reveals that a forward-looking view on bank resilience can be obtained through a combination of regulatory capital ratios, market valuations, and insights from stress tests. The data show that market valuations have broadly recovered from the troughs observed at the onset of the pandemic. Although bank resilience has been buttressed by the capital and liquidity buffers raised after the Great Financial Crisis, the weaker banks, mainly from Asia and Europe, appear particularly exposed to potential setbacks in economic growth and an associated increase of credit losses once crisis-related policy support and prudential relief are phased out. In a downside scenario, there is a risk of chronically weak banks being tied to chronically weak borrowers (zombie firms). As economies recover from the crisis, efforts to address pre-existing structural vulnerabilities in the banking sector need to be reinvigorated. Against this backdrop, policymakers face the challenge of phasing out policy support without jeopardizing the recovery. Flexible, state-contingent approaches to adjusting or withdrawing support are needed. This calls for targeted measures that require beneficiaries to opt-in, while making the terms of support progressively less generous. Supervisory authorities will need to balance a supportive macro-prudential stance with timely recognition of bank losses to encourage balance sheet repair and support the monitoring of bank resilience.
Related Links
Keywords: International, Banking, COVID-19, Stress Testing, Regulatory Capital, MARC, Credit Risk, Non-Performing Loans, Expected Credit Loss, Basel, BIS
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Previous Article
ISDA Announces Results of Consultation to Implement Swap FallbacksRelated Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023