BIS published a Bulletin (or a short report) that reviews the response of the central banks of the United States, the euro area, Japan, the United Kingdom and Canada to the disruptions caused by COVID-19 pandemic. An appendix accompanying the Bulletin provides further details on the policy measures announced by the central banks in these geographies and describes the assumptions underlying the projections presented in the Bulletin. The Bulletin highlights that central banks responded promptly and forcefully, consistent with their mandates, to preserve smooth market functioning and an effective transmission of monetary policy.
The initial response of central banks was focused primarily on easing financial stress and ensuring a smooth flow of credit to the private non-financial sector. The pandemic triggered complementary responses from monetary and fiscal authorities. Fiscal backstops and loan guarantees supported central bank actions. Asset purchases, designed to achieve central banks’ objectives, helped contain the costs of fiscal expansions. Overall, by addressing credit risk concerns, fiscal support complemented monetary policies directed at sustaining credit to the non-financial private sector.
Looking ahead, the footprint of central banks’ measures on their balance sheet are likely to be seen for a prolonged period. While liquidity and short-term lending programs can be easily reabsorbed at the time of the recovery, assets purchased are typically held to maturity. Under conservative assumptions about the share of outstanding assets purchased by central banks under each program and a plausible take-up and rollover of lending operations, the authors project the size of central banks’ balance sheets to expand in 2020 at a faster pace than ever before. With the outbreak of COVID-19, earlier hopes of ending up in a pre-global financial crisis (GFC) environment characterized by lean central bank balance sheets over the near future have faded away.
Keywords: International, Banking, COVID-19, Loan Guarantee, Credit Risk, Central Bank Balance Sheets, 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.
Previous ArticleFIN-FSA Examines Capital Position of Banking Sector Amid Pandemic
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.
The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.
The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).
The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.