On 16 April 2020, the European Central Bank (ECB) announced a temporary reduction in capital requirements for market risk, by allowing banks to adjust the supervisory component of these requirements.
The ECB is temporarily reducing a supervisory measure for banks – the qualitative market risk multiplier – which is set by supervisors and is used to compensate for the possible underestimation by banks of their capital requirements for market risk.
This temporary reduction of the qualitative multiplier compensates for currently observed increases of another factor, the quantitative multiplier, which can rise when market volatility has been higher than predicted by the bank’s internal model.