Tomáš Konečný, Lukáš Pfeifer, 19 November 2020

The financial sector has an essential role to play in addressing the economic fallout from the Covid-19 pandemic. This column discusses the link between financial stability and restrictions on the mobility of capital along national borders of cross-border banking groups in the context of macroprudential capital buffers. It argues that apart from the direct absorption of systemic shocks, such macroprudential policies also enhance the performance of existing risk-sharing mechanisms, in particular in the case of synchronous shocks in the EU. The ESRB recommendation for restrictions of distributions during the pandemic contributes to the stabilising role of macroprudential capital buffers in the EU.

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