The Financial Regulators across the World will face a dilemma once the withdrawal from Covid-19 measures begins as to how and when to exit from regulatory relief measures in balancing the benefits of economic relief with financial stability considerations.
“The challenge will be how and when to exit from regulatory relief measures. In terms of timing, authorities need to steer a course between Scylla and Charybdis. Acting too early may remove much needed credit to support economic growth.
Waiting too long may delay necessary resource reallocation and put additional long-run pressure on the financial sector as the solvency phase of the crisis could expose any depletion of loss-absorbing resources, potentially undermining confidence in the post-crisis regulatory regime and its ability to preserve the financial system’s stability,”the Bank of International Settlements (BIS), General Manager, Agustín Carstens said.
In pacrtalur, he assrted that the Regultors need to monitor for assest quaility of banksc closely.
“Supervisors need to closely monitor bank practices in identifying non-performing loans and provisioning. Such assessments, which require banks to distinguish between borrowers facing short-term liquidity problems and those with longer-term solvency issues, may become particularly challenging the longer that the crisis persists,” he noted.
The Central Bank of Sri Lanka (CBSL) is among the many financial regulators across the world that have relaxed certain regulatory requirments on the banking sector to support the economy to bounce back from COVID-19 ecobomic crisis.
Ultimately, he stressed that the authorities would have to balance the benefits of economic relief with financial stability considerations.
We are in the midst of a major transformation. An economist would say that Covid-19 has caused a structural break. Detecting that break was easy; much harder is the question how to deal with it, especially since the pandemic’s trajectory remains uncertain.
“Thus, supervisors will have to remain on high alert in the immediate future, as they face formidable supervisory challenges. Meanwhile, it will be important for them to keep an eye on issues beyond Covid, such as the sustainability of banks’ business models and resilience more broadly,” he conlucded.