A Quick but Effective Fix
The European banking system responded in a positive way to the monetary, fiscal, regulatory and supervisory measures meant to maintain banks' ability to provide funds to the economy during the COVID-19 pandemic.
European Banks' Response to COVID-19 'Quick Fix' Regulation and Other Measures, a study conducted by Brunella Bruno and Filippo De Marco (Bocconi Department of Finance) upon request of the European Parliament's Committee on Economic and Monetary Affairs, analyzed a sample of 27 large European banking groups, corresponding to 50% of banking assets in 10 EU Member States. A €123bln credit increase in 2020 compared to 2019 was observed, half of which (€63bln) due to the so-called "quick fix," a series of measures implemented in mid-2020 to give temporary capital relief to banks, thus allowing them to expand credit at a time of great need for companies.
The study evaluates the COVID-19 relief measures adopted from March 2020 and finds that the impact of the measures on banks' credit supply has been positive overall and mainly driven by capital-enhancing measures such as the quick fix.
The relief measures analyzed in the study also include monetary policy measures, and in particular the injections of long-term liquidity; fiscal measures, namely loans under moratoria and subject to public guarantees; and measures introducing flexibility in prudential, supervisory, and resolution practices.
Banks have used the relief measures extensively, but the scholars find large cross-country differences in some measures. While the monetary policy measures were widely used, moratoria and public credit guarantees have been respectively used mainly by high debt countries and by large countries.
Discerning the effect of a single measure in a period when many of them have been implemented at the same time is methodologically challenging. In their estimate of the quick fix effect, the authors exploited the fact that, in their accounts, the banks had to reckon effects of the quick fix measures on their capital. "And since extant literature," explains Professor Bruno, "provides us with an approximation of the elasticity of credit to capital variations, we could calculate the share of credit increase due to the quick fix measures."
Brunella Bruno, Filippo De Marco, European Banks' Response to COVID-19 'Quick Fix' Regulation and Other Measures, Publication for the Committee on Economic and Monetary Affairs, Policy Department for Economic, Scientific and Quality of Life Policies, European Parliament, Luxembourg, 2021.