On 16 April 2020, the European Central Bank (ECB) announced a
temporary reduction in capital requirements for market risk, by
allowing banks to adjust the supervisory component of these
requirements.
The main purpose of the temporary relief is to, apart from
smoothing procyclicality, to preserve the banks' ability to
provide market liquidity and to continue market-making
activities.
Accordingly, the supervisory measure in relation to the
qualitative market risk multiplier has been reduced by the ECB to
counteract for the increase in the quantitative multiplier.
The latter decision will be reviewed in six months' time on
the basis of observed volatility.
Link to the ECB press statement here.
