underway to distil the lessons that emerge from it. the basel committee ( bcbs ) has started to assess the impact of the ongoing pandemic on the banking system and published a report on 1 for example the exceptional levels of market volatility in q1 and q2 2020 led to an elevated level of so - called value - at - risk ( var ) back - testing exceptions across the industry. in order to mitigate the possibility of excessively pro - cyclical market risk capital requirements through the automatic application of a higher var multiplier, the pra allowed firms – on a temporary basis – to offset increases due to new exceptions through a commensurate reduction in risks - not - in - var ( rniv ) capital requirements. 2 broken down into direct budget support of $ 10 trillion ; and additional public sector loans and equity injections, guarantees, and other quasi - fiscal operations of $ 6 trillion. the aggregate cet1 capital ratio for major uk banks increased from 14. 8 % at end - 2019 to 15. 8 % at end - september 2020. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice preliminary lessons learned earlier this month. 4 also this month, the financial stability board submitted an interim report to the g20 on lessons learned for the financial system as a whole. 5 a major lesson that has emerged so far is that the banking system has remained resilient through the covid19 pandemic while continuing to provide credit to the real economy. this is, in part, due to the substantial increases in capital and liquidity held by banks as a result of the adoption of the post - global financial crisis reforms, and represents a major vindication of those reforms. if i can use the analogy of a fire, one did break out in the banking system following the onset of the pandemic, but because the locus was well fire - proofed – with capital and liquidity – and because both the monetary and fiscal firefighters were alert and acted quickly and decisively, the fire was put out before it could take hold. but it was not obvious that this would have been the case at the outset. in particular, it was by no means certain that the regulatory capital buffers built up ex ante by banks as a result of those reforms, and designed to allow them to lend to the real economy whilst absorbing losses, would actually be used

may be a tension between conserving capital to provide additional individual bank resilience, and supporting the economy – especially if there is uncertainty about the timeline for the restoration of buffer levels after a recovery – even though supporting the economy would provide a better outcome for banks as illustrated a moment ago. the policy question and the opportunity to explore it if a regulatory buffer is not practically usable in the sense that banks do not want to dip into it, then it has little value in helping firms to absorb shocks in ways that keep lending going in bad times. it ties up resources without providing the extra capacity in stress that regulators wanted them to provide, and had assumed they would when determining how to prepare the system to absorb shocks. if a regulatory buffer is instead perceived as similar to a minimum requirement and firms take actions to avoid dipping into it, these actions might be harmful to the real economy and, as last year ’ s bank analysis showed, to the banking system. thus it is essential to have a well - designed regulatory buffer framework which can make fresh resources available when they are most needed. the early covid stress gives us an opportunity to investigate how the current framework behaves and how practically usable regulatory buffers may be. given the effectiveness of the fire - fighting i mentioned at the outset, bank capital ratios did not approach their capital conservation buffers, so we cannot probe directly how banks would have behaved had capital ratios fallen inside that regulatory buffer. however, there are at least three approaches we can look at. approaches to analysing capital buffer usage approach 1 – what do banks and investors say about buffers? the first approach involves asking banks what constraints they face in practice in dipping into buffers and how they manage their capital positions. in broad terms, they told us that expectations of capital instrument and debt investors and concerns about the actions of credit ratings agencies are a major constraint. in order to avoid investor and ratings agency opprobrium, banks will consider a range of actions, including cutting lending, rather than go beyond their capital risk appetite – which is typically well above regulatory buffers. conversations with investors and rating agencies were largely consistent with this view. banks also face internal risk appetite constraints which may be higher than regulatory requirements and buffers, especially given that capital is often managed on a forward looking, rather than a ‘ spot ’, basis. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice