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Law360, London (March 19, 2020, 12:44 PM GMT) -- Ireland's central bank has said it will release banks from holding a capital buffer so that they can pump money into households and businesses during the economic downturn caused by the spread of COVID-19, in a move that follows U.K. and European measures
The Central Bank of Ireland said late Wednesday that it has reduced the so-called countercyclical capital buffer that banks have been required to hold in preparation for economic shocks from a rate of 1% to 0%. This will temporarily remove the capital requirement by no later than April 2.
The Irish authority said that the buffer is designed to be dropped when banks face economic risks so that homeowners and businesses can use the money.
"The banking system has in recent years built up its capital and liquidity buffers, strengthening its resilience to adverse shocks," the central bank said late Wednesday. "This resilience is precisely for periods like these. The capital buffers are there to be used, to support the businesses, consumers and the wider economy in this difficult time."
The countercyclical buffer is one of several capital buffers banks are required to hold to protect against market stress under the Basel III regulatory framework for bank capital. The rules are among measures taken since the 2008 financial crisis to allow banks to absorb losses without collapsing.
The relaxation in capital requirements comes as the global spread of the COVID-19 disease, which first appeared late last year in Wuhan, China, is expected to hurt financial-sector profits as it begins to cause consumer and business spending and borrowing to stagnate.
The central bank said that it will not increase the buffer before the start of 2021 at the earliest.
The Irish authority added that it will engage with the financial sector to ensure that businesses are responding effectively to the global coronavirus pandemic. The central bank said it will be meeting with domestic retail lenders on Thursday to discuss their response to the challenges presented by COVID-19.
Ireland's measures echo those set out by the Bank of England last week. The central bank also decided to temporarily remove the countercyclical capital buffer for banks for at least 12 months to release £190 million ($216 million) into the economy.
And the central bank cut a key interest rate for bank refinancing to 0.25% from 0.75%.
The European Central Bank followed suit by relaxing various capital requirements for European Union banks to encourage lending and offset the impact that the virus scare is having on the bloc.
And the ECB added monetary policy steps to provide banks and borrowers more access to credit if cash circulating in the financial system runs short.
--Editing by Tom Mudd.
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