Capital responses, CCP losses and buffer worries

The week on, March 14–20, 2020

7 days montage 200320

US G-Sibs urged to release surplus liquidity to fight virus sell-off

Top banks have about $378 billion of extra HQLA that could be released

Banks rail against China CCPs’ loss-sharing policy

Controversial loss allocation technique remains unused during the Covid meltdown, but banks want it banned

The Fed’s stress capital buffer: relaxed but not relaxing

Bankers welcome key methodology improvement, but final rule could still curb dividends

COMMENTARY: The regulators’ week

Central governments didn’t exactly cover themselves in glory last week – the Russian and Saudi governments kicked off by embarking on an oil price war that crashed markets around the world, and sudden switches in policy in the UK and an unsettling and error-filled presidential address in the US did little to reassure the world later in the week.

This week, by contrast, the authorities have been digging in. Central banks’ massive interventions in the bond markets have grabbed the headlines, but there are other areas too where central banks and regulators are acting to ease avoidable strain on the industry.

Capital buffers intended to cushion the impact of a sudden slowdown are being released in six countries – and the US Federal Reserve is encouraging the systemically-important banks it oversees to deploy up to $156bn of capital from their own buffers (though its own rules on calculating stress capital buffers are causing some concern).

Delaying implementation of some regulatory standards such as the Securities Financing Transactions Regulation is seen as a ‘done deal’ by banks, and although accounting overseers are pushing ahead with the Current Expected Credit Loss rule, its implementation – set to bring a massive capital hit to banks in the US – could also become a more gradual process.

But they need to do more. Economic downturn will risk the failure of a large number of small businesses in every country in the world, and that isn’t just bad news for banks from a credit point of view – it also represents a massive increase in third-party risk. It means weakening the infrastructure of service providers, suppliers and support staff, from couriers to caterers to cleaners, on which the functioning of the financial system (in a very basic and unglamorous way) depends.

Reality does not care about hedging strategies – and just as the virus itself can infect rich and poor alike, the financial crisis it is producing can bring down financial institutions by crashing their investment portfolios or by undermining their operations in a much more concrete way.


In 2019, the eight systemic US banks bought $110 billion of their own shares. Combined shareholder payouts, through buybacks and dividends, exceeded their aggregate net income by 117% last year. They planned to buy back $58 billion of their own shares in the first half of this year. But, on March 15, they jointly announced that all purchases would stop and the saved capital be used to support an economy reeling from the effects of the coronavirus



“We haven’t seen an oil move of that magnitude since the Gulf War, so it was a one-in-30-year event. The equity moves we’ve seen these last few days exceed those we saw in 2008, and are the largest since 1987. We saw similar extreme moves in rates over the past two weeks. Central counterparty margins are not designed to cover the most extreme market moves – if we did, margin rates would risk becoming too expensive and potentially damaging liquidity” – Lee Betsill, CME Group

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here