Global Banks — Better Positioned to Handle Today's Turmoil than in 2008-09


Under tremendous market pressure created by the global pandemic, regulators and central banks around the world have reacted by implementing measures intended to help banks preserve capital. The question remains: can banks withstand the impact of COVID-19? Our Financials Equity Team summarizes their perspectives from their latest research report.

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For the latest original research and thoughtful perspectives from our research team, please visit RBC Insight.

Report Key Takeaways:

While uncertainty about the economic fallout of the pandemic remains, banks are in a better position to handle the downturn today than they were during the financial crisis.
In this report we examined the common equity tier 1 (CET 1) ratios, and the minimum ratios required by regional regulators. In Canada, the U.S., the U.K. and Europe the median CET 1 ratios are currently 11.5%, 11.2%, 14.8% and 13.0%, respectively. The median CET 1 ratios in these geographies (respectively) sit at 2.5%, 2.1%, 4.0% and 3.8% above their regulatory minimum/required ratio, indicating adequate ability to withstand financial distress, although the extent of the distress from COVID-19 is still unknown.

Many actions – some unprecedented – have been taken by regulators and central banks around the world to ensure global banks preserve capital and maintain liquidity access in the COVID-19 era. In some cases, banks are no longer required to automatically classify deferred loans as a result of COVID-19 as delinquent. Pending changes related to Basel III reforms have been postponed. In many geographies, measures have been taken to ensure banks have the capacity to offer financial relief and flexibility to individuals and small and medium-sized businesses to help them face this historic challenge.

Regulators have suspended common share dividends for large banks in the U.K. and Europe, but in the U.S. and Canada we see some banks publicly committing to continue paying them out. In general, Canadian banks have sufficient capital to guard against regulators mandating they halt dividend payments, and U.S. banks have strong enough capital ratios and low enough dividend payout ratios. However, if the U.S. is still in a recession in 2021 similar to the financial recession, banks may have to follow suit with the U.K. and suspend dividend payments in order to relieve financial pressure. 

The RBC Financials Equity Team authored the report “Global Banks — Better Positioned to Handle Today's Turmoil than in 2008-09”. For more information about the full report, please contact your RBC sales representative.

 


For Required Conflicts Disclosures, click here. These disclosures are also available by sending a written request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7 or sending an email to rbcinsight@rbccm.com.

Published April 20, 2020


RBC Financials Equity Team


BanksCOVID-19CoronavirusFinancials

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