ECB to Extend Leverage-Ratio Relief for Banks by Nine Months

(Bloomberg) -- The European Central Bank said it will extend a key plank of its pandemic relief measures by nine months to ensure lenders keep supplying credit to the economy.

The ECB will allow lenders to continue to exclude deposits held at central banks when calculating their leverage ratio until March next year, according to a statement from the central bank Friday.

Bloomberg reported on Wednesday that the ECB was set to extend the relief. The exemption, which would otherwise expire on June 27, effectively makes banks look stronger and allows them to do more business with existing financial reserves.

The ECB’s stance contrasts with that of its peers in Switzerland and the U.S., which allowed leverage ratio relief measures to expire this year. It highlights the euro area’s stronger reliance on bank loans, rather than capital markets, as a source of corporate financing. The ECB and other authorities have given banks unprecedented regulatory relief during the pandemic to help them absorb losses and keep lending, and by now many institutions have seen earnings rebound.

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