COVID-19 and the financial system — How resilient are the banks? How are they supporting the economy?

COVID-19 has turned the world economy upside down. Banks are essential for recovery.

As the massive impact of COVID-19 continues to dominate most of the world, the global banking sector faces the challenge of keeping the economy running during foreclosure and helping to recover from the pandemic.

The economic shock was undoubtedly acute and severe. Governments and central banks have acted swiftly, implementing an arsenal of fiscal and monetary stimulus packages to curb supply shortages, provide liquidity to financial markets and help millions of people who have lost their jobs.

In this way, banks act as a de facto delivery system that distributes money to those in need.

With the end in sight and the virus still growing, banks are well aware that how they respond to the crisis in the future will determine how they rebuild. Support from governments and customers is more important during the crisis, but it requires banks to use the tools they have developed since the 2008 financial crisis to provide a coherent and comprehensive response to areas unknown.

Speed   is the key

Banking support for businesses, the economy, and society takes various forms. In the United States, they are implementing the $ 2 billion Coronavirus Aid, Relief and Economic Security (CARES) law, which includes direct payments to people and a $ 484 billion package to finance small businesses and hospitals. and coronavirus testing.

In Europe and the Asia-Pacific region, banks also facilitate similar public services for economies that are in different stages of the blockchain. In March, the UK government initially announced a £ 330bn government-guaranteed loan package to support businesses and has since introduced additional tax measures, such as R&D assistance to SMEs.

In all markets, banks support retailers and SMEs with tolerances and exemptions.

The COVID-19 pandemic and the economic strike have had a significant impact on financial markets and banks. Banks must play a key role in channeling credit (including from the government) to businesses and households, both to alleviate the pain of the recession and to accelerate the return to a more normal economy when the pandemic arrives. To strengthen banks’ capacity, regulators encouraged them to use their capital and liquidity buffers and reduce some capital requirements. Are the banks living up to expectations? If banks are strong enough to borrow due to the economic downturn, or should they cut dividends or buy back stocks, for example? What have we learned from the behavior of banks in the credit and bond markets about the costs and benefits of Dodd-Frank and other reforms implemented after the Great Recession of 2007-2009? What vulnerabilities were exposed? Are there any long-term risks to financial stability if regulatory precautions are extended?

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