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Euro zone banks get 73 billion euro ECB relief to withstand pandemic

FILE PHOTO: The head quarter of the European central bank (ECB,R) is photographed during sunset in Frankfurt, Germany, April 22, 2020, as the spread of the coronavirus disease (COVID-19) continues. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) - The European Central Bank on Thursday gave euro zone banks relief worth 73 billion euros from a key capital requirement in order to help them keep credit flowing amid the coronavirus pandemic.

The 115 banks directly supervised by the ECB will be allowed to exclude some of their exposure to the central banks, including deposits, from the calculation of their leverage ratio until next June.

The ECB said this exclusion would raise the aggregate leverage ratio of 5.36% by about 0.3 percentage points, equal to some 73 billion euros based on the latest available data as of the end of March.

“The situation brought about by the coronavirus (COVID-19) pandemic has affected all euro area economies in an unprecedented and profound way,” the ECB said.

“This situation has resulted in an ongoing need for a high degree of monetary policy accommodation, which in turn requires the undeterred functioning of the bank-based transmission channel of monetary policy.”

The leverage ratio, which requires banks to hold capital worth 3% of their total exposure, will only become binding in July but banks are already required to disclose it.

The ECB’s banking supervision arm will have to take a new decision if it wishes to extend the relief beyond the end of June 2021, when the leverage ratio becomes binding.

Reporting By Francesco Canepa; Editing by Kevin Liffey