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Banks provided resilience, flexibility during pandemic: ECB head

Bank lending to companies in Euro area rose $289.3B in March-May 2020, largest jump on record, Christine Lagarde says

European banks and banking supervision provided resilience and flexibility during the coronavirus pandemic, European Central Bank (ECB) President Christine Lagarde said Tuesday.

“Unlike past crisis, banks were not part of the problem. They were part of the solution,”she said via webcast at the ECB Forum on Banking Supervision in Frankfurt, Germany.

Stressing that banks were in a strong financial position during the start of the pandemic and strengthened the common response to the crisis, she said “We saw the sharpest contraction in output ever recorded, and one of the steepest recoveries ever observed” during the pandemic.

Lagarde laid out three key areas where European banking supervision provided a valuable response to the COVID-19 crisis.

First, European supervision ensured the entire banking system built resilience during the run-up to the pandemic through having a common rulebook and set of standards in Europe.

Second, European supervision leveraged banks’ strong financial positions to unlock lending across the EU when the economy urgently needed it.

“The combined response allowed banks to rapidly funnel liquidity to the economy. Between March and May 2020, bank lending to companies in the Euro area rose by almost €250 billion ($289.3 billion), the largest jump on record in any three-month period,” she said.

Lagarde noted that European supervision also recommended suspending dividend payments to ensure capital was not flowing out of the banking sector but used to support the economy.

And third, European supervision ensured the consistency of those measures across the banking sector.

“Having a single supervisor meant that bold collective action could be taken to reduce banks’ natural incentives to retrench and cut lending to the economy during a recession. And crucially, that action could happen in all countries simultaneously and with breakneck speed,” she told.

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