COVID-19: How Will European Banks Fare?
Departmental Papers, March 26, 2021
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Bibliographic details
- Authors: Shekhar Aiyar, Mai Dao, Andreas Jobst, Aiko Mineshima, Srobona Mitra, Mahmood Pradhan
- Published: March 26, 2021
- Series: Departmental Papers
- DOI: https://doi.org/10.5089/9781513572772.087
Summary
- Purpose: Evaluates the impact of the crisis on European banks’ capital under a range of macroeconomic scenarios, using granular data on the size and riskiness of sectoral exposures.
- Role of policy: Analysis incorporates pandemic-related policy support, including regulatory relief for banks and policies to support businesses and households, which act to shield the financial sector from the real economic shock.
- Authors: Shekhar Aiyar, Mai Dao, Andreas Jobst, Aiko Mineshima, Srobona Mitra, Mahmood Pradhan
- Publication date: March 26, 2021
Methodology and Scenarios
- Data: Granular data on size and riskiness of sectoral exposures (EBA sample and related data referenced in keywords).
- Approach: Stress testing framework that projects bank capital under a range of macroeconomic scenarios and incorporates policy measures such as regulatory relief and support for businesses and households.
Key Findings and Projections
- Core finding: Pandemic-related policy support materially cushions the banking sector by shielding banks from the full impact of the real economic shock.
- Focus areas: Bank capital, bank profitability, nonperforming loans, loan defaults, corporate risk, and return on assets / return on equity under stress scenarios.
- The paper contains a comprehensive quantitative analysis spanning 114 pages (see Publication Details).
Policy Recommendations and Implications
- Maintain and coordinate pandemic-related policy support for businesses and households to continue shielding the banking sector from real economy shocks.
- Use regulatory relief targeted at banks to preserve lending capacity during the crisis.
- Monitor bank capital and nonperforming loans closely as support measures are withdrawn to manage transition risks.
Subject Tags and Keywords (as provided)
- Subjects: Bank capital, Bank risk management, Capital adequacy requirements, Corporate profits, Countercyclical capital buffers, Europe, External balance assessment (EBA), External position, Financial institutions, Financial regulation and supervision, Loans, Nonperforming loans, Stress testing
- Keywords: Bank capital, bank profitability, Capital adequacy requirements, corporate risk, Countercyclical capital buffers, COVID-19, debt service moratoria, EBA sample, EBA transparency Exercise, ECB analysis, ECB-Banking Supervision, Europe, External balance assessment (EBA), Global, hurdle rate, IMF staff calculation, loan default, Loans, Nonperforming loans, operating income, return on assets, return on equity, stress test, working capital
Content in this bundle
- COVID-19: How Will European Banks Fare?; IMF Departmental paper No. DP/21/08; March 2021