Banking systems may need help if handicapped by disruption from coronavirus lockdowns: IMF

WION Web Team
New Delhi, Delhi, India Published: Apr 01, 2020, 07.54 AM(IST)

File photo. Photograph:( Reuters )

Story highlights

In a bid to bolster banks’ capital reserves, the European Central Bank last week ordered lenders to halt all dividend payments until October 2020 at the earliest, while big banks in the United States are also under pressure to halt dividends after suspending share buybacks this month.

Officials at the International Monetary Fund (IMF) have suggested that the banking systems of some countries might have to be recapitalised or even restructured, if their economies are severely handicapped by prolonged disruption from the coronavirus outbreak.

Tobias Adrian, the director of the IMF’s monetary and capital markets department, on Tuesday told Reuters in an interview that in a ‘baseline’ scenario that would be a repeat of a 2009-type growth path, banks could withstand the adverse impact. Adrian cautioned, however, that conditions could deteriorate. Leading regulators and bank chief executives, particularly in the United States, have said lenders are robust enough to withstand the unfolding economic crisis.

“In a beyond-severely adverse scenario, then it could be that some banks are undercapitalised and at that point policy makers might have to take further actions such as recapitalising or restructuring banking systems," Adrian said.

Adrian, in a blog post with Aditya Narain, deputy director in the IMF’s Monetary and Capital Markets Department, also outlined a number of measures regulators should take to mitigate the effects of the economic crisis on banking systems.

What banks are expected to do now is loan modifications, according to Adrian. He and Narain said that with the last financial crisis, global coordination was "imperative."

In a bid to bolster banks’ capital reserves, the European Central Bank last week ordered lenders to halt all dividend payments until October 2020 at the earliest, while big banks in the United States are also under pressure to halt dividends after suspending share buybacks this month.

Former crisis-era banking regulators have also called for banks to curb bonus payouts and to reduce leverage by winding down derivatives trades and securities lending portfolios that do not support the real economy.

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