Description
Under these unprecedented circumstances, central banks and governments enacted a wide range of policy interventions. While some measures were aimed at reducing the sharp tightening of financial conditions in the short term, others sought to support the flow of credit to firms, either by direct intervention in credit markets (e.g., government-sponsored credit lines and liability guarantees) or by relaxing banks’ constraints on the use of capital buffers.
While credit institutions are being called to play an important countercyclical role to support the real sector, these actions also have a series of implications for the future resilience of the banking sector. For instance, as lenders exhaust their existing buffers, they might also experience deterioration of asset quality, threatening the systems’ stability. As the crisis is expected to continue, even after the lockdowns are lifted and economies start to reopen, the net effect of these policy measures on the banking sector is largely unknown.
