CESEE’s macroprudential policy response in the wake of the COVID-19 crisis

The COVID-19 crisis represents a major shock to the global economy with severe repercussions on financial markets. However, compared to the situation at the start of the global financial crisis (GFC), the banking system is better prepared to withstand the shock. Banks are better capitalized and the regulatory framework, including the macroprudential one, was substantially reinforced in the aftermath of the GFC in many countries across the globe. Hence, national authorities have increased leeway to respond to the recession and market instability caused by the pandemic. In this paper, we assess how EU member states in Central, Eastern and Southeastern Europe (CESEE) have adjusted their macroprudential policies in response to the COVID-19 crisis. To this end, we utilize a recently developed, intensity-adjusted index that tracks a broad set of macroprudential policy instruments. We find that countries responded quickly to the outbreak of the crisis by relaxing capital buffer and liquidity requirements, or at least refraining from previously planned tightening. At the same time, we observe that borrowerbased measures and minimum reserve requirements were only rarely relaxed and risk weights were not changed at all.