Governments and central banks must deepen aid to economies: Btens Carstens

LONDON, Mar 29 (Reuters) – Governments and central banks must urgently step up measures to support their economies in the face of the coronavirus crisis, the head of the Bank for International Settlements said on Sunday.

The general manager of the central bank group, Mexico’s Agustín Carstens, wrote an opinion piece on Sunday in which he called for “urgent” solutions more ambitious than those used during the 2008 financial crisis.

The rules established after the 2008 collapse were designed to prevent banks from overreaching, but the concern now is that they are not lending when capital markets have slammed shut for many companies.

“To give viable companies a lifeline to overcome the sudden economic downturn caused by COVID-19, a solution that covers the final stretch is needed to reach those on the brink of the precipice,” Carstens said.

Major central banks have been quick to invest trillions of dollars in emergency funds into the global banking system, but that money needs to reach those who need it, he wrote.

A first step to salvaging what he called “the final tranche” would be for banks to use their capital reserves, in addition, he said, “a global freeze on bank dividends and share buybacks is needed.”

Carstens also recommended government-guaranteed bank loans for small and medium-sized businesses, equal to the amount of tax each paid last year, but should only go to those that were profitable last year to limit the scope of corruption.

“Tax deferred loans” could be securitized and refinanced by the central bank, and any losses will be borne by governments.

Ultimately, he said, these principles must “go global,” drawing on central bank dollar swap lines to channel liquidity and prevent global supply chains from crumbling.

(Report by Marc Jones .; Edited in Spanish by Javier López de Lérida)