Coronavirus reaches the financial sector

***** Update of 3 April 2020: Additional measures in the light of the challenges resulting from the coronavirus pandemic *****

 

In the past weeks, the spreading coronavirus pandemic already caused national and European financial supervisory authorities to take far-reaching measures in respect of banks and financial institutions (see our newsletters of 24.03.2020, 20.03.2020 and 18.03.2020). In the light of the massive impact of the coronavirus crisis, the financial authorities have taken further action to unburden bank institutions and to reduce ambiguities in the application of regulatory requirements through announcements. The superior objectives in this context are the stability of the financial sector and the continuous supply of financial services to the real economy. Measures include, in particular, the loosening of capital requirements and the grant of organisational facilitation. Of course, some measures themselves raise questions among the institutions, for example as to the dividend policy recommendations which are at least legally questionable. It is to be expected in this respect that the supervisor authorities or even the lawmakers will take further action shortly. Newly introduced measures are outlined below:

Basel III standards

On 27 March 2020, the governing body of the Basel Committee on Banking Supervision (BCBS) through the Group of Central Bank Governors and Heads of Supervision (GHoS) decided to extend the schedule for implementing the Basel III finalising package. The final implementation date by which the BCBS members have to fully implement the Basel III standards was postponed by one year to 1 January 2023. The transitional periods for the output floor now apply until 1 January 2028. The new final date for implementation of the market risk framework and the pillar 3 disclosure requirements is 1 January 2023.

Reporting of default risks and relevance of debt repayment moratoria

In a public statement ESMA pointed out how issuers should calculate credit losses (Expected Credit Losses) which they may expect as a result of an increased default risk of their debtors due to the coronavirus crisis in their IFRS 9 accounts. In this context, ESMA also refers to the effects which government support measures may have on accounting.

EBA also clarified in this context that a debtor does not automatically have to be classified as defaulted with respect to a specific loan, and that the credit risk is not even significantly increased, as a result of a generalised debt referral by means of a debt moratorium. Instead, the institutions should assess for each individual borrower whether such borrower is likely to fully settle the deferred debt. With regard to IFRS 9, the institutions are expected to distinguish between borrowers whose credit standing is unlikely to be significantly affected by the coronavirus crisis in the long term, and those unlikely to restore their creditworthiness.

As regards the technical advice of the Institute of Public Auditors in Germany (IDW) regarding the impairment of financial instruments under IFRS 9 in the quarterly accounts of banks, BaFin and Deutsche Bundesbank share IDW’s view that the current corona situation does not lead to any undifferentiated and automatic transfer of financial instruments from stage 1 to stage 2 or stage 3. In its Covid-19 Q&A, BaFin states that in the light of the extensive government measures to support real economy businesses, such an automatism was not justified at this point in time.

Domestic countercyclical capital buffer

As expected, with effect from 1 April 2020, BaFin reduced the ratio for the domestic countercyclical capital buffer to 0 per cent of the total debt amount calculated in accordance with Article 92(3) CRR by means of its decision of general application (see our update of 20 March 2020). The domestic countercyclical capital is unlikely to be increased again before 1 January 2021.

Dividend payments

The financial supervisory authorities confirmed their view that in the light of the coronavirus crisis banks should refrain from making dividend or profit distributions: On 27 March 2020, the ECB asked the significant institutions (SIs) in a “recommendation” not to pay any dividends until at least October 2020. BaFin, too, expects the institutions under its direct supervision (less significant institutions, LSIs) not to make any dividend or profit distributions until at least October 2020. Banks have a key role in overcoming the coronavirus crisis which they can fulfil only if they are equipped with sufficient capital and do not use the freedom gained as a result of the German federal government’s extensive support package and regulatory changes for paying dividends. Instead, the available capital should remain in the banking sector to render the institutions more stress-resistant and to further support the granting of loans to the real economy. The EBA shares this basic assessment. Of course, the details are still unclear. The German Bundesbank signalled, for instance, that dividend restrictions are not intended to apply to distributions within a bank group or association. The statements issued to date on the expectations of the supervisory authorities are legally not binding so far anyway, even though their practical effects are obviously significant.

Critical bank personnel

According to the Financial Stability Board (FSB), at least a limited number of essential personnel are required to be on-site for some critical functions. These workers should be recognised as essential personnel necessary to maintain infrastructure that is critical to the financial system. The FSB states that, for example, this applies to branch staffing, but also to certain services which customers request electronically. Where social distancing regulations apply, firms must have in place appropriate plans to ensure business continuity and facilitate working from home. BaFin shares this view of the FSB.

Securities and market supervision

The securities regulators have agreed on a global, coordinated approach to mitigate the effects of the coronavirus crisis on the financial markets. For the purposes of the European securities and market supervision, ESMA has taken additional measures or clarified certain aspects in the meantime:

• Reporting obligations according to MAR
  
  BaFin emphasizes that persons subject to reporting requirements pursuant to Art. 16 (1) and (2) MAR must have suitable systems and processes for market abuse monitoring at their disposal even under the changed working and general conditions in order to identify suspicious orders and transactions and to transmit them to BaFin. Suspicious transaction reports must be made within a reasonable period of time, taking into account the current challenges of the Corona crisis and the circumstances of the individual case. Due to the currently very volatile markets and the strong turnover, BaFin assumes that a high number of alarms will be raised by the system among those obliged to report. When assessing whether these alarms are actually due to suspicious orders or transactions, the current special market conditions must be taken into account in the manual review.
  

• Financial reporting
  
  The national competent authorities (NCAs) are to not take any action against issuers required to publish their financial reports under the Transparency Directive in the event of delayed performance of their obligations as a result of the coronavirus pandemic. By this statement, ESMA acknowledges potential difficulties in preparing financial reports due to the coronavirus pandemic. At the same time, however, ESMA emphasises the importance of timely and transparent financial reports, noting that issuers have to inform investors of the duration of potential delays.

• Backloading
  
  ESMA has clarified that the NCAs are expected not to prioritise their supervisory actions in respect of reporting obligations for backloading (i.e. the reporting of securities financing transactions concluded by market participants prior to the reporting obligations taking effect). A similar policy already applies to securities financing transactions concluded by market participants between 13 April 2020 and 13 July 2020. The NCAs are expected not to prioritise the monitoring of reporting obligations in this respect, either.

• Securities and Markets Stakeholder Group
  
  ESMA extends the application deadline for collaboration in its Securities and Markets Stakeholder Group to 9 April 2020. This is intended to provide interested parties with more time to submit their applications.

 

 

***** Updated on 24.03.2020 *****

 

Shortly after the first signs of the coronavirus crisis, financial supervisory authorities became active at both national and EU level (see our newsletter on 18 March 2020 and the update on 20 March 2020). The course of the pandemic shows, however, that the challenges for financial institutions have not yet been overcome, but that further measures or clarifications are needed. The financial supervisory authorities are obviously well aware of this and have responded to the urgent need for clarification with various announcements.

In this respect, the FAQ on various coronavirus topics published on the BaFin website, which are to be regularly updated and expanded, deserve special mention. Some statements that are already known are summarised there, and there is also some new information. For example, it is clarified that the analysis of the last available annual financial statements is sufficient for the assessment of creditworthiness within the meaning of section 18 of the German Banking Act (KWG), and that a full-year liquidity analysis of the borrower from the past can be used to assess the ability to service capital. Although these and similar instructions do not invalidate the supervisory regulations, they should nevertheless help the institutions to deal pragmatically with the onslaught of loan applications that has already begun and is likely to increase further.

In addition, the following further measures have now been taken:

• In a notice dated 19 March 2020, BaFin once again points out that all financial market participants, including the financial market infrastructure, should be prepared to use their contingency plans and measures to ensure business continuity in line with the statutory obligations. Issuers must comply with their obligations under the Market Abuse Regulation without delay and publish all relevant information on the effects of the coronavirus. The actual and potential effects of the coronavirus must also be reflected in the financial reports for 2019, if these have not yet been published. Otherwise, they must be reflected in the interim reports.
• After ESMA had already stated in its announcement of 18 March 2020 that in the light of the coronavirus crisis, a certain easing in connection with reporting obligations could take effect, on 20 March 2020 it published a notice on the application of the MiFID II regulation to the recording of telecommunications. In this notice, ESMA reminds the institutions that they must comply with the regulatory requirements under MiFID II. However, it concedes that there may be exceptional circumstances in which the recording of conversations as required by supervisory law is not practicable. In such situations, however, the institutions are expected to consider alternative steps to counter the risks arising from failure to record conversations. Admittedly, this could only be a temporary transitional arrangement, as the institutions would have to do their utmost to ensure that the conversations were recorded as required by the regulatory authorities.
• In response to ESMA's notification, BaFin made it clear that it was not granting a dispensation from compliance with the rules of conduct, but would exercise its discretion in the event of breaches in view of the coronavirus circumstances, also taking into account appropriate substitute measures taken by the institutions.
• On 20 March 2020, the Financial Stability Board (FSB) called on the supervisory authorities and financial institutions to use the flexibility provided for under existing international standards to continue to grant market participants access to financial resources even in the time of the coronavirus pandemic.
• On 20 March 2020, EIOPA published recommendations for the operational equalisation of reporting, in the preparation of which BaFin was intensively involved and which it therefore supports.
• In a notice dated 20 March 2020, the BCBS stated that for the time being it would suspend all policy initiatives, as well as all planned assessments of member countries’ supervisory regimes that it intended to look at in 2020 as part of its regulatory coherence assessment programme.
• On 20 March 2020, the ECB put into effect its announced capital relief measures totalling €120 billion, which will allow banks to refinance loans worth €1.8 trillion.
• In an announcement dated 20 March 2020, ESMA stated that it expects national supervisors not to prioritise supervisory measures on the new tick size regime (minimum price spreads for trading in shares, share-representative certificates and ETFs) for systematic internalisers between the start of validity on 26 March and 26 June 2020.
• The EU-wide stress test will be postponed to 2021 (see our news on 18 March 2020), although the EBA is planning an additional EU-wide transparency exercise this year. 

 

***** Updated on 20.03.2020 *****

 

The effects of the increasing spread of the novel coronavirus (Covid-19) are already being felt in many business sectors and life situations. Drastic effects of the coronavirus crisis cannot be ruled out for the financial sector, as the marked price slump on the international capital markets clearly shows. Financial institutions must quickly grapple with the question of how an escalation of the coronavirus crisis could influence their business and how they should react to it. The steps to be taken depend on each institution’s specific situation, but existing regulatory requirements can help to identify a few guidelines.

Ensuring proper business organisation is a matter for top-level management

Current developments are a challenge for institutions’ business organisation. Although applicable legal requirements do not explicitly refer to a pandemic, regulators have already begun to take action based on general requirements. In this context, banking institutions’ duty to ensure proper business organisation is gaining in significance. The fact that the responsibility for its fulfilment is placed on a company’s managing director(s) makes it clear that this is a very fundamental task (see sections 25a(1) sentence 2 and 25c(3) and (4a) German Banking Act, Gesetz über das Kreditwesen - KWG). This means that proper business organisation is a top-level priority, and managing directors should direct their personal attention to the consequences of the coronavirus crisis for their bank. Of course, this does not mean that managing directors have to take care of every single detail. But they do have to make sure that the bank’s procedures, risk management systems and basic direction meet the challenges of the corona crisis.

Vetting and activating emergency plans

In crisis situations such as the one at hand, it is of particular importance for credit institutions to take well-thought-out steps to ensure that business activities continue smoothly, thus averting damage to the bank and its customers. Here, many financial institutions will be able to fall back on their existing emergency plans, which are an essential part of a proper business organisation (see sections 25a(1) sentence 3, no 5 and 25c(4a) no 5 KWG and, especially for securities services undertakings, article 21(3) of the Delegated Regulation (EU) 2017/565). However, if the present pandemic situation is not or not adequately reflected in these emergency plans, credit institutions must update their planning and take appropriate precautions against the negative effects that the coronavirus crisis can have on their ability to function properly. Because the effects are wide-ranging, regulatory agencies have already entered into dialogue with banks regarding their emergency plans and by all accounts begun to conduct random sample checks.

What steps must be included in emergency plans and/or taken according to such plans depends on the relevant circumstances. The particularly critical areas from the viewpoint of risk and/or business continuity are to be given higher priority consideration. Possible emergency measures include:

• prohibiting business trips to risk areas or subjecting them to stricter approval procedures;

• cancelling/postponing gatherings / events;

• precautions to prevent the institution’s crucial employees from being infected at work (e.g. physically separating teams, making teleworking possible or – to the extent permissible under applicable employment law – mandatory);

• packages of measures to take in case of infection of employees (e.g. identifying persons with whom they have had contact, disinfecting the office, substitution procedures, including clear communication requirements and areas of responsibility, teleworking options, moratorium on leave, option of moving employees to other departments, possibly an option of temporary outsourcing).

Now more than ever, the emergency measures must be workable, which means that they should be tested if this has not already been done.

Outsourcing

When examining their emergency planning, banks cannot limit themselves to their own direct sphere of influence (i.e. their own employees and premises), but must also include their relationships to their service providers. This is especially important for essential outsourcing within the meaning of section 25b KWG. In other words, they must examine whether and how a bank would be affected if an outsourcing partner was no longer able to provide its services properly due to the coronavirus crisis. To do so, they must compare the bank’s emergency planning to that of the outsourcing provider. Under the minimum risk management requirements (MaRisk) set by the German Federal Financial Supervisory Authority (BaFin), this has been required for a long time, but it is sometimes seen as more of an annoying routine that does not receive the necessary attention. However, including outsourcing companies in a bank’s own emergency planning received even more significance due to the EBA outsourcing guidelines published last year – for good reason, as is now becoming apparent. It is also necessary to draw up plans to safeguard business operations in case outsourcing companies are not able to provide the credit institution with their agreed services at all or to the previous extent. For the sake of adequate risk management, financial institutions should thus contact at least their most important outsourcing companies and discuss the effects of present developments, including in the event of a worst case scenario.

***** Compliance with regulatory requirements *****

Prudent action is necessary when implementing risk prevention or mitigation measures. One of the things that this means is that taking steps to prevent employees from being infected by Covid-19 should not result in creating other risks. In this context, thought should be given to factors such as fulfilling regulatory requirements, which may be jeopardised precisely by spontaneous action. Recently, the German Federal Financial Supervisory Authority (BaFin) pointed this out in a publication – while mentioning leeway that is found in the relevant provisions – in connection with commercial transactions outside of business premises. For example, it could be difficult to ensure that telephone conversations of employees involved in investment advice or trade are recorded when they are working from home. It must also be ensured that a bank’s IT systems are capable of handling numerous employees working from home in order to prevent additional IT security risks. If employees cannot work due to illness and other employees replace them, it goes without saying that this should not result in any de facto revocation of separation of roles or a failure to observe confidentiality areas (Chinese walls).

***** Update on BaFin bulletins on on-site inspections *****

BaFin has now provided guidance on the question of how the corona crisis affects on-site inspections (for example, in the context of an audit of annual financial statements under sections 28 et seq. KWG or an audit according to section 89 German Securities Trading Act): In the future, due to the unique circumstances caused by the corona pandemic, auditors are temporarily  permitted to refrain from on-site audits. However, BaFin expressly emphasises that this is an exception that only applies as long as the Covid-19 infections are at their height and the measures taken to combat the pandemic are in effect. The general obligation to conduct the legally required audits remains in effect. Thus, undertakings must assure that the auditor is provided with the documents necessary for an audit by way of electronic access. If a complete “remote” audit is impossible due to a lack of sufficient electronic access to all of the required documents, the audit must be performed at a later date. Nevertheless, according to its own announcement, BaFin will not pursue any notification of possible breaches of deadlines in such cases and does not see any necessity for a formal interruption notification.

***** Update on BaFin bulletin regarding annuity suspension *****

Also in its FAQ, BaFin has now addressed the issue of regulatory treatment of suspensions of loan receivables. It has clarified that, in the event of a suspension of an annuity of up to two months (i. e. 60 days), the debtor involved is not to be deemed in default. If a loan is deferred but interest at the conditions originally agreed (“at the original effective interest rate”) has been agreed, such a deferment is initially to have the effect that the loan remains within the notified limit in order to prevent the occurrence of a “material past-due credit obligation” within the meaning of Art. 178(1b) of Regulation (EU) no. 575/2013 (CRR) from occurring. In the event of such deferment, a borrower’s financial obligation is likewise not to be deemed reduced, thereby preventing the occurrence of “distressed restructuring” within the meaning of Art. 178(3d) CRR. BaFin points out that, in its opinion, corresponding action on the part of the bank is generally in accordance with MaRisk requirements. However, it also states that, under their own responsibility for business policies, financial institutions are responsible for the decision as to the criteria and prerequisites under which a deferment takes place at all for the benefit of a borrower. Due to the corona crisis, financial institutions should be permitted to set standards that differ from those prevailing in normal times.

***** Financial consequences – with an update on the ECB’s Pandemic Emergency Purchase Programme (PEPP) *****

The greatest challenge for credit institutions will presumably be coming to grips with the financial consequences of the coronavirus crisis in a market environment that was already difficult. The economic consequences that have already occurred or are to be expected are also significant from a legal standpoint. If there are already indications of stagnation in economic developments or even a recession, it will probably not be long before this is reflected in banks’ own books in the form of more loan defaults and possibly less demand for loans. To support banks in meeting these challenges, the ECB has now decided to make up to € 750 billion in additional funds available to the markets by expanding the on-going securities purchase programme within the context of a “Pandemic Emergency Purchase Programme” (PEPP).

As early as 12 March 2020, the ECB decided on additional temporary relief for the significant banks it directly regulates. Besides operational relief (for example, regarding on-site inspections and deadlines for the implementation of remediation actions), these ECB measures include in particular capital relief. This includes the following temporary measures:

• Banks will be permitted to operate temporarily below the level of capital defined by the Pillar 2 Guidance (P2G), the capital conservation buffer (CCB) and the liquidity coverage ratio (LCR).

• Banks will also be allowed to partially use capital instruments that do not qualify as Common Equity Tier 1 (CET1) capital, for example Additional Tier 1 or Tier 2 instruments, to meet the Pillar 2 Requirements (P2R). The ECB considers that these temporary measures will be enhanced by the appropriate relaxation of the countercyclical capital buffer (CCyB) (which was only recently increased to 0.25% in Germany) by the national macroprudential authorities. It is apparent from publicly available sources that such a decrease of the CCyB had already been resolved in Germany by BaFin’s Financial Stability Committee.

• Another supporting measure announced by the EBA is the postponement to 2021 of the EU-wide stress test to allow banks to prioritise operational continuity. In its role as a national supervisory body, BaFin was involved in the decision-making processes at both the ECB and the EBA and has pledged to support the resolved measures and take them into account in its supervision of banks not under its direct supervision.

With this in mind, banks should in any case consider the continued advance of the corona virus as a risk factor and include its significance in their own business and risk strategy. One factor to be considered here is how a credit institution’s risk-bearing capacity would develop in different stress scenarios.

 

***** News published on 18.03.2020 *****

The effects of the increasing spread of the novel coronavirus (Covid-19) are already being felt in many business sectors and life situations. Drastic effects of the coronavirus crisis cannot be ruled out for the financial sector, as the marked price slump on the international capital markets clearly shows. Financial institutions must quickly grapple with the question of how an escalation of the coronavirus crisis could influence their business and how they should react to it. The steps to be taken depend on each institution’s specific situation, but existing regulatory requirements can help to identify a few guidelines.

Ensuring proper business organisation is a matter for top-level management

Current developments are a challenge for institutions’ business organisation. Although applicable legal requirements do not explicitly refer to a pandemic, regulators have already begun to take action based on general requirements. In this context, banking institutions’ duty to ensure proper business organisation is gaining in significance. The fact that the responsibility for its fulfilment is placed on a company’s managing director(s) makes it clear that this is a very fundamental task (see sections 25a(1) sentence 2 and 25c(3) and (4a) German Banking Act, Gesetz über das Kreditwesen - KWG). This means that proper business organisation is a top-level priority, and managing directors should direct their personal attention to the consequences of the coronavirus crisis for their bank. Of course, this does not mean that managing directors have to take care of every single detail. But they do have to make sure that the bank’s procedures, risk management systems and basic direction meet the challenges of the corona crisis.

Vetting and activating emergency plans

In crisis situations such as the one at hand, it is of particular importance for credit institutions to take well-thought-out steps to ensure that business activities continue smoothly, thus averting damage to the bank and its customers. Here, many financial institutions will be able to fall back on their existing emergency plans, which are an essential part of a proper business organisation (see sections 25a(1) sentence 3, no 5 and 25c(4a) no 5 KWG and, especially for securities services undertakings, article 21(3) of the Delegated Regulation (EU) 2017/565). However, if the present pandemic situation is not or not adequately reflected in these emergency plans, credit institutions must update their planning and take appropriate precautions against the negative effects that the coronavirus crisis can have on their ability to function properly. Because the effects are wide-ranging, regulatory agencies have already entered into dialogue with banks regarding their emergency plans and by all accounts begun to conduct random sample checks.

What steps must be included in emergency plans and/or taken according to such plans depends on the relevant circumstances. The particularly critical areas from the viewpoint of risk and/or business continuity are to be given higher priority consideration. Possible emergency measures include:

• prohibiting business trips to risk areas or subjecting them to stricter approval procedures;

• cancelling/postponing gatherings / events;

• precautions to prevent the institution’s crucial employees from being infected at work (e.g. physically separating teams, making teleworking possible or – to the extent permissible under applicable employment law – mandatory);

• packages of measures to take in case of infection of employees (e.g. identifying persons with whom they have had contact, disinfecting the office, substitution procedures, including clear communication requirements and areas of responsibility, teleworking options, moratorium on leave, option of moving employees to other departments, possibly an option of temporary outsourcing).

Now more than ever, the emergency measures must be workable, which means that they should be tested if this has not already been done.

Outsourcing

When examining their emergency planning, banks cannot limit themselves to their own direct sphere of influence (i.e. their own employees and premises), but must also include their relationships to their service providers. This is especially important for essential outsourcing within the meaning of section 25b KWG. In other words, they must examine whether and how a bank would be affected if an outsourcing partner was no longer able to provide its services properly due to the coronavirus crisis. To do so, they must compare the bank’s emergency planning to that of the outsourcing provider. Under the minimum risk management requirements (MaRisk) set by the German Federal Financial Supervisory Authority (BaFin), this has been required for a long time, but it is sometimes seen as more of an annoying routine that does not receive the necessary attention. However, including outsourcing companies in a bank’s own emergency planning received even more significance due to the EBA outsourcing guidelines published last year – for good reason, as is now becoming apparent. It is also necessary to draw up plans to safeguard business operations in case outsourcing companies are not able to provide the credit institution with their agreed services at all or to the previous extent. For the sake of adequate risk management, financial institutions should thus contact at least their most important outsourcing companies and discuss the effects of present developments, including in the event of a worst case scenario.

Compliance with regulatory requirements

Prudent action is necessary when implementing risk prevention or mitigation measures. One of the things that this means is that taking steps to prevent employees from being infected by Covid-19 should not result in creating other risks. In this context, thought should be given to factors such as fulfilling regulatory requirements, which may be jeopardised precisely by spontaneous action. Recently, BaFin also pointed this out in a publication - with reference to the leeway provided by the relevant regulations - in connection to commercial transactions outside office premises. For example, it could be difficult to ensure that telephone conversations of employees involved in investment advice or trade are recorded when they are working from home. It must also be ensured that a bank’s IT systems are capable of handling numerous employees working from home in order to prevent additional IT security risks. If employees cannot work due to illness and other employees replace them, it goes without saying that this should not result in any de facto revocation of separation of roles or a failure to observe confidentiality areas (Chinese walls).

Financial consequences - with update on supervisory simplifications

The greatest challenge for credit institutions will presumably be coming to grips with the financial consequences of the coronavirus crisis in a market environment that was already difficult. The economic consequences that have already occurred or are to be expected are also significant from a legal standpoint. If there are already indications of stagnation in economic developments or even a recession, it will probably not be long before this is reflected in banks’ own books in the form of more loan defaults and possibly less demand for loans. In order to support banks in meeting these challenges, the ECB has decided to grant temporary relief to the major institutions under its direct supervision. These ECB measures include procedural simplifications (e.g. with regard to on-site inspections and deadlines for remedying identified deficiencies) and, in particular, the capital requirements imposed on institutions. The following mechanisms are temporarily in place:

• Institutions are allowed to operate below the capital levels of the Pillar 2 Guidance (P2G), the Countercyclical Capital Buffer (CCB) and the Liquidity Coverage Ratio (LCR).
• In order to meet the Pillar 2 minimum capital requirements (P2R), institutions may in some cases also use capital instruments that are not part of the hard core capital (Common Equity Tier 1, CET 1), such as instruments of Additional Tier 1 capital (AT 1) and Tier 2 capital. In addition, national supervisors are encouraged to reduce the countercyclical capital buffer (which in Germany was recently increased to 0.25%) by an appropriate ratio, thereby supporting the ECB's actions

As a further accompanying measure, the EBA has announced that it will postpone the pan-European bank stress test until 2021 to allow banks to focus on their core business. As the national supervisory authority, BaFin was involved in the respective decision-making processes of the ECB and the EBA and will, according to its own statement, support the measures adopted and take them into account in its supervision of institutions not under direct ECB supervision.

With this in mind, banks should in any case consider the continued advance of the coronavirus as a risk factor and include its significance in their own business and risk strategy. One factor to be considered here is how a credit institution’s risk-bearing capacity would develop in different stress scenarios.