Regulators shake off slowdown, boost banks’ buffers: Fitch

The global economy is slowing in response to rising interest rates, yet bank regulators are continuing to take steps to increase banks’ soundness, says Fitch Ratings.

In a new report, the rating agency said that banking supervisors are generally forging ahead with plans for tighter macroprudential measures — such as higher capital buffers — which should gradually curb loan growth, despite the global economic slowdown.

“However, if the economic slowdown becomes more severe, we believe some authorities may rethink their plans to increase countercyclical capital buffers given the risk that higher buffers could lead banks to supply less credit when the economy most needs it,” Fitch said.

In the event that regulators decide to reverse course and relax banks’ macroprudential measures, the report said that Fitch expects supervisors to be cautious, and that the bar for allowing banks to tap their capital buffers will be higher than it was before the pandemic.

Additionally, Fitch doesn’t expect regulators to ease more targeted measures, such as borrower-based constraints designed to address household credit risks.

“Such measures shield banks from asset-quality deterioration and strengthen borrowers’ capacity to absorb shocks,” it said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.