Ample liquidity: refinancing operations (TLTRO III, PELTROs) Also in keeping with our mandate, I would like to briefly mention that we have been able to rely on the traditional tools we have at our disposal. For example, we have made changes to our existing refinancing operations and introduced new pandemic emergency longer-term refinancing operations (PELTROs) in order to provide credit to the banks and the real economy. As a result, we have seen a surge in the provision of credit in support of the real economy as well as a related knock-on effect on asset prices. Supervisory measures – the need for an innovative approach to tackle the crisis I would now like to look at the supervisory side, where the ECB has had to take an innovative 3/5  BIS central bankers' speeches  approach to tackling the crisis. As I mentioned earlier, what is true for our bold monetary policy response to the pandemic is also true for our supervisory response: our measures are exceptional and temporary and within the regulatory boundaries of the internationally agreed framework. The ECB was one of the first supervisory authorities to recommend that all banks under its supervision restrict their dividend distributions in the light of the impact of the COVID-19 pandemic. Soon after our announcements in March, other supervisory bodies around the world followed suit with similar measures. While not binding, most banks have followed the ECB’s recommendation.
Holdings of liquid assets have trebled. BIS central bankers’ speeches  3  However, two crucial elements of the capital and liquidity regime are still at the design and agreement stage. The first is an international standard on leverage. Though the risk-weighted capital framework provides a system that it is more sensitive to risk, it is reliant on those risk-weights being correctly calculated and, therefore, vulnerable to so-called model risk. The riskweighted approach will fail if the risk-weights are wrongly calculated, either individually or, collectively. And the evidence of the crisis is that this risk can become more pronounced in boom times when asset prices are rising and the pressure to expand balance sheets with cheap funding is greatest. The result is dangerous concentrations in what appear to be lowrisk assets. It is telling that if a minimum leverage standard been in place prior to the crisis, it would have bound more tightly than risk-weighted measures for a number of banks that met their risk weighted capital ratios but that subsequently failed. The debate about the relative merits of risk weighted capital controls versus un-risk-weighted controls like the leverage ratio has in my view become too hung up on the question of backstops and frontstops – on which constraint should bite first. This is an unhelpful way to look at the issue. Risk-weighted and non-risk- weighted measures protect against different risks. The leverage measure is there to manage model risk, which can be very significant.