Webinar: Walking the Tight Rope between Providing Liquidity to Individuals and Businesses during the COVID-19 Pandemic and Capital Adequacy
This event will be run as a live webinar using Zoom. Click here for information on using Zoom.
The presentation will cover two main topics in the wider field of banking.
1. The Core Equity Tier 1 Capital (‘CET1’) ratios of banks are likely to be weakened by the combination of:
(i) the potential rise in customer and business defaults because of the fall in GDP and the significant increase in unemployment; and
(ii) a possible surge in demand for emergency liquidity loans as economies recover.
Item (i) above will reduce the core equity capital of banks, the numerator of the CET1 ratio, while, item (ii) above, depending on extent of government guarantees, may increase credit risk-weighted assets of banks, the CET1 ratio denominator.
2. Under the IFRS 9 accounting standard, expected credit losses are recognised at each reporting period, even if no actual loss events have taken place. The economic fallout from the COVID-19 pandemic is probably the first real and significant test of the impact of IFRS 9 on the financial statements of banks since it became effective on 1 January 2018.
The COVID-19 pandemic has lead to a coincidence in the timing of IFRS 9 loan-loss provisions and a demand for emergency lending by businesses and individuals to reboot the economy, both of which reduce the CET1 ratios of banks by reducing ‘own funds’ and increasing risk-weighted assets respectively.
What steps can banks, their regulators, and governments take to mitigate the impact of COVID-19 and enable economies to reboot?
John Caslin: John is the chairman of the Society’s Banking and Aviation Finance Committee. Earlier this year he authored a discussion paper entitled 'The First ‘Real’ Test of IFRS 9 - The Economic Fallout from the COVID-19 Pandemic’ which was published on the Society’s website. He has served as a director of iShares plc, a director of Alder Capital, and as a member of the investment committee of the board of Eagle Star (now Zurich). He is currently the Head of Investment Innovation at Aviva in Dublin.
Niall Dillon: Niall is Head of Capital Management in AIB. Capital Management drives use of capital resources, as well as determining the level and quality of capital the Bank needs to support its strategic and financial objectives, commensurate with the risks to which it is exposed. Niall previously held a number of other roles in Asset & Liability management relating to liquidity and interest rate risk management. After 2 years in an actuarial capacity in Anglo’s insurance arm, in 2010, Niall joined the Balance Sheet Management Team in the Bank where he got first-hand experience in dealing with and de-risking a Bank suffering extreme credit losses and liquidity stress. Niall actively engages with local and other European industry bodies on the evolving Capital/SREP (and previously liquidity) regulatory environment and is a member of the Society’s Banking & Aviation Finance sub-committee.