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Law360, London (June 18, 2021, 4:04 PM BST) -- The eurozone's central bank said on Friday it will save banks approximately €70 billion ($83 billion) by extending a capital relief measure until the end of March 2022 to boost lending and help the economy recover from the coronavirus pandemic.
The European Central Bank said that the 115 banks it directly supervises can exclude coins, banknotes and deposits that they hold at central banks when they calculate their so-called leverage ratio until March 2022. The ratio is the quantity of regulatory capital an institution holds divided by its total assets, a measure of its ability to withstand a financial shock.
The exclusion, which the ECB announced in September, was due to expire on June 27. The central bank said it has extended the measure to give relief to the bloc's largest banks so that they can continue to provide credit during the COVID-19 pandemic.
The ECB said the exclusion will save lenders approximately €70 billion. Based on data from the end of 2020, 39 banks have used the exclusion, the central bank said.
"[European Union] law allows banking supervisors, after consulting the relevant central bank, to temporarily allow banks to exclude central bank exposures from their leverage ratio in exceptional macroeconomic circumstances," the ECB said on Friday. "Banks that elect to use this extension should nevertheless plan to timely maintain sufficient capital in view of the expiry of the prudential exemption."
EU lawmakers in 2020 gave banking supervisors the power to temporarily relax the ratio during the pandemic, when they waved through "quick fixes" to the Capital Requirements Regulation — which aims to decrease the likelihood that banks fall into insolvency — to support lending during the crisis.
The relaxation in capital requirements came as the global spread of COVID-19 was expected to hit profits in the financial sector as it causes consumer and business spending and borrowing to stagnate.
--Editing by Joe Millis.
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