Crisis-era regulators call on banks to halt distributions, de-leverage trading

Thursday, March 19, 2020 11:13 a.m. CDT by Thomson Reuters

By Michelle Price

WASHINGTON (Reuters) – Banks should immediately halt share buybacks, dividends and most staff bonuses to bolster capital and increase the capacity to lend to the real economy, a group of former senior regulators said in a statement to G20 finance ministers and central bankers on Thursday.

The Systemic Risk Council (SRC), a non-partisan body which comprises a number of officials who navigated the financial system through the 2008 crisis, said regulators should also require banks to gradually de-leverage their trading books and unwind deals, such as swaps and securities-lending portfolios, that do not support the real economy.

The statement to finance leaders in the Group of 20 industrialized economies was issued amid a scramble for dollar liquidity globally as businesses suffer revenue hits from disruption caused by the spreading coronavirus outbreak.

“Weaknesses in the financial system are exacerbating the potential feedback loops, which risk deepening the downturn and impeding eventual economic recovery,” the group wrote, pointing to a massive rise in corporate leverage and liquidity mismatches in the non-bank lending sector.

On Sunday, the largest eight US banks announced they had suspended stock buyback programs at least through the end of June as they redeploy capital to support the US economy in the face of a widening health crisis, although the Wall Street giants did not comment on dividends or remuneration. [L1N2B95JV]

The SRC also repeated criticisms of deregulatory measures taken by the Trump administration and other governments in the world, to reduce bank equity and liquidity requirements, saying those efforts should be immediately suspended.

The Council, which includes Sir Paul Tucker, a former deputy governor of the Bank of England, and Jean-Claude Trichet, a former president of the European Central Bank, also added to calls for central banks to provide direct liquidity to businesses hurt by business disruption. [L4N2BA5HN]

The group also recommended that authorities widen the collateral used in their longer-term market operations, such as in repurchase agreements, prepare to act as market makers of last resort in capital markets and where necessary conduct wider outright purchases of private securities.

(Reporting by Michelle Price; Editing by Paul Simao and David Gregorio)

More found at: