To cope with the economic impact of the COVID-19 pandemic, the launch of the PEPP which is a new asset purchase programme for private and public sector securities, and the strengthening of the intervention capacity of the existing Asset Purchase Programme (APP) will increase the balance sheet of the European Central Bank (ECB) by "€1.1 trillion" by the end of 2020, said the President of the Frankfurt monetary institute, on Thursday 16 April, in her speech during the video conference meeting of the International Monetary and Financial Committee (IMFC), the IMF's political governing body.
Recalling the unprecedented decisions already taken on 12 March (see EUROPE 12445/1) and 18 March (see EUROPE 12450/6) to prevent a collapse of the economy, Mrs Lagarde reiterated that the Governing Council is committed to "do everything necessary" within the framework of its mandate, namely to increase the size of its asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed.
The next regular meeting of the Governing Council is scheduled for Thursday, 30 April.
Acting as supervisor of the major banking groups in the euro area, the ECB analyses the ability of banks to withstand the coming economic shock while continuing to provide credit to the European economy.
Euro area banks have more "robust" capital and liquidity positions than at the time of the 2008 financial crisis, Lagarde said.
On Tuesday, the European Banking Authority reported that European banks had 14.8% of the hightest quality capital (CET1) at their disposal at the end of 2019, up from 14.4% in Q3 2019.
The ECB and the national prudential authorities in the euro area have taken specific measures to ease the regulatory constraints on banks to continue lending to economic operators. Ms Lagarde quantified these measures: - €120 billion for the possibility to operating below the level of capital defined by the Pillar 2 guidance of the prudential rules; - €22 billion for the easing of constraints related to the provision of buffers for systemically important institutions; - €30 billion in the event of non-payment of dividends to shareholders until October 2020 (see EUROPE 12461/14).
Echoing the recent report of the Financial Stability Institute (see EUROPE 12466/23), Ms Lagarde is of the opinion that non-bank financial institutions need to be "closely" monitored, as some investment funds have been experiencing "significant" capital outflows. Nevertheless, the ECB's decision to expand the APP to non-financial commercial paper has "stemmed" outflows from euro area money market funds, she noted. (Original version in French by Mathieu Bion)