Buffer’s guide

5 January 2021 By Liam Proud Follow @liamwardproud

Big shock absorbers allowed American and European lenders to survive the pandemic. Even so, they required state guarantees and supervisory relief to support lending. Though post-2008 reforms made banks safer, their instinct to preserve capital can make an economic crisis worse.

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The rules surrounding banks’ risk buffers may need to change to encourage lenders to tap their capital and avoid a squeeze on credit following the coronavirus pandemic, Bank of England Deputy Governor Jon Cunliffe said on Oct. 15.

Even though regulators have given banks the green light to dip into buffers to help businesses through Covid-19, there was a “first mover disadvantage” to doing so as it could limit dividends and other payouts, Cunliffe said.

The Financial Stability Board, which coordinates the work of national regulators, said in a July 15 report that more work may be required to ensure that banks use their capital buffers during periods of financial stress.

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