Banking Sector Regulatory and Supervisory Response to deal with Coronavirus Impact with Q and A

This note provides MCM views on the appropriate regulatory and supervisory response to deal with the impact of the Coronavirus pandemic that can maintain the balance between preserving financial stability, maintaining banking system soundness and sustaining economic activity. Post-GFC banking regulation aims to protect the interest of depositors and preserve financial stability.

Relaxing these minimum standards can jeopardize these objectives and precipitate further financial instability. Many supervisors have developed an approach to dealing with such large-scale disasters through guidance built around prudent renegotiation of loan terms without lowering loan classification and provisioning standards.

Countries need to be prepared: the economic impact of the coronavirus will affect borrowers’ capacity to service loans, and banks’ earnings will suffer. Governments should not encourage unsound practices or provide blanket relaxation of standards.