The prudential response to the Covid-19 crisis

Speech by Mr Claudio Borio, Head of the Monetary and Economic Department of the BIS, on the occasion of the Bank's Annual General Meeting, Basel, 30 June 2020.

BIS speech  | 
30 June 2020

The prudential response to the Covid-19 crisis (00:11:55)

Borio outlines central banks' Covid-19 response as regulators and supervisors, notably encouraging banks to use capital buffers to sustain credit flows to households and businesses. 

presentation slides

The prudential response to the Covid-19 crisis has been unprecedented. Supervisors did not tighten the policy stance, but rather encouraged banks to use their capital buffers to keep credit flowing and support the economy. They could do so only because banks entered the recession with stronger balance sheets thanks to the post-Great Financial Crisis regulatory reforms. The strategy has worked so far. Still, challenges lie ahead, as defaults among borrowers may mount. At some point, capital buffers will need to be replenished. Indeed, replenishing policy buffers generally - prudential, monetary and fiscal - is likely to be the challenge in the decade ahead.