Europe’s banks should know nothing comes for free.

The European Commission on Tuesday spelled out more capital relief for lenders in an effort to keep them lending to households and businesses during the coronavirus pandemic.

European banks have already benefited from lower capital buffers and lighter touch requirements to the tune of €1.8 trillion of lending firepower.

Tuesday’s measures, which need approval from legislators, would add roughly €450 billion to that total for eurozone lenders just from the relief on provisions for expected losses.

But the Commission made clear it is closely watching how banks use any newly freed-up capital and treat their customers during the crisis.

The European Central Bank on Tuesday reported that banks tightened credit standards on loans to both households and businesses in the first three months of the year.

Lenders have already come under pressure from regulators to scrap dividend payouts and limit bonuses to keep capital on their books.

They also face scrutiny in some countries over the speed at which they are signing off on government-backed loans to struggling businesses. Bank of England Governor Andrew Bailey has told lenders "to put their back into it."

Dialogue with industry

Commission Executive Vice President Valdis Dombrovskis said Tuesday the EU would launch a “dialogue” with industry to iron out best practices to support households and businesses — and it won’t just be banks taking part.

Groups representing consumers and businesses will be invited to join the discussion alongside financial players.

“We plan to involve banks, but also non-bank lenders, insurance companies, fintech companies and other financial market participants,” Dombrovskis said.

A Commission spokesperson declined to elaborate with further details.

The Latvian commissioner leveled some criticism against banks on Tuesday, saying the response has not been uniform across the EU.

Lenders in some countries have hiked interest rates, required excessive collateral, raised fees and offered short maturities on loans, he said. Elsewhere, they have been quick to provide support.

“Since we are currently dealing with a symmetrical economic shock which is hitting all EU member state economies, it is important that also [the] banking sector response is more uniform,” he told journalists.

The European Central Bank on Tuesday reported that banks tightened credit standards on loans to both households and businesses in the first three months of the year. Still, the ECB said the surveyed lenders expect to ease conditions for companies in the current quarter due to government support.

Since the COVID-19 crisis first hit, policymakers and regulators have stressed banks can play a positive role in the fight against the virus — compared to their previous role as villains of the 2008 financial crisis.

Conduct code

EU officials have been mulling how best to get the financial sector on board. That includes mooting a code of responsible conduct for banking, insurance and capital markets.

Dombrovskis made clear that if the stakeholder discussions fail to help hard-hit companies access financing, the Commission could go further, such as formally pausing loan repayment schedules.

“We know that for example [a] number of member states have legislated requirements concerning certain moratorium,” he said. “So we can look at this experience, other possibilities.”

Banks may have gained regulatory freedom designed to help them play their part in the crisis. Authorities are now watching to make sure they pass it on.

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