On 12 March 2020, the European Central Bank (ECB) announced a number of measures to ensure that its directly supervised banks can continue to fulfil their role in funding the real economy.

Key points in the announcement include:

  • the ECB will allow banks to operate temporarily below the level of capital defined by the Pillar 2 guidance, the capital conservation buffer and the liquidity coverage ratio;
  • banks will be allowed to partially use capital instruments that do not qualify as Common Equity Tier 1 capital, for example Additional Tier 1 or Tier 2 instruments, to meet the Pillar 2 requirements; and
  • the ECB is discussing with banks individual measures, such as adjusting timetables, processes and deadlines. For example, the ECB will consider rescheduling on-site inspections and extending deadlines for the implementation of remediation actions stemming from recent on-site inspections and internal model investigations, while ensuring the overall prudential soundness of the supervised banks.