Banks in the European Union are to receive more capital relief so they can help companies struggling in the coronavirus pandemic without having to make crippling provisions for loans during a looming deep recession, sources said on Monday.
The bloc's financial services chief Valdis Dombrovskis is expected on Tuesday to propose that the EU “emulate in some form” a move by the US Federal Reserve to allow banks to ease how they calculate their leverage ratio, sources familiar with the package said.
A separate decision by Basel to delay by a year a set of new bank capital rules is also likely to be endorsed by Dombrovskis, the sources said.
“Whatever comes out tomorrow is likely to be targeted specifically at COVID-19, time limited, low risk in nature and consistent with changes suggested by other jurisdictions,” said Michael Lever, head of prudential at the Association for Financial Markets in Europe.
Banks in Europe are expected to report higher provisions in upcoming first-quarter earnings due to the impact of national lockdowns on companies.
Dombrovskis is also expected to propose bringing forward new rules that allow banks to offset the value of software against capital requirements, the sources said.