Likewise, consideration of the positive impact of public guarantees and moratoria on the repayment capacity of private sector agents also seeks to mitigate the deterioration in credit ratings. These measures seek, as I say, to avoid a mechanistic application of the accounting rules leading to a procyclical effect. However, poor use of the rules could facilitate inappropriate accounting practices, delaying the recognition of actual deterioration in the credit quality of certain exposures. For this reason, supervisory guidelines also consider that accounting measures should not be detrimental to the appropriate identification of impairment or the assignment of reasonable coverage for credit risk, providing banks with the necessary incentives to maintain standards that meet supervisory expectations. These measures also include the adaptation of banks’ internal systems for the correct identification of transactions affected by the measures put in place to adapt accounting to the COVID-19 crisis. The crisis generated by the pandemic has already had a significant impact on the income statements of non-financial corporations and on the incomes of households, and has reduced the solvency of both. However, the increase in the rate of default has, to date, been very limited. This is largely explained by the broad raft of measures adopted by the various authorities, which have not only prevented a sudden sharp increase in the rate of default in this period, but have also mitigated its future increase. In any event, the projections suggest that the rate of default will increase significantly in the coming quarters even in the most benign scenario.

It should be recognised, however, that the use of buffers may be hindered if banks are afraid that reaching certain capital ratios would be penalised by the financial markets, raising their cost of financing and, thus, their solvency levels. This market stigma effect may lead banks to avoid using capital buffers, which, according to the above-mentioned analysis, would have a negative impact on the economy. One way of trying to alleviate this problem has been through the forceful monetary and fiscal policy measures applied during the crisis, which have enabled the financing costs of European banks to remain very low. The use of these capital buffers by banks may also be hindered if there are doubts regarding the process of capital buffer rebuilding after the crisis. The difficulty would be if banks were required to rebuild their buffers at a time when the capacity to generate profit was modest or the market was not receptive, as the fall of the banking sector on global stock markets demonstrates. To ease this problem, the authorities have made it clear that banks will have sufficient time to restore compliance with capital requirements and that the process will not start before the main effects of the pandemic have been dispelled. An additional issue that hinders banks’ use of capital buffers is that, under current regulations, if their capital levels fall below certain thresholds, preventive measures, such as a ban on paying dividends and the suspension of interest payments on AT1 and T2 instruments, are activated.