IS BANKING INDUSTRY AN ISLAND OF STABILITY AMID CORONAVIRUS OUTBREAK?

Banks certainly have their hands full in the light of the novel coronavirus disease outbreak. Borrowers and businesses face job losses, slowed sales, and decreasing profits as the pandemic continues to spread around the world. Banks’ customers start seeking financial relief, mortgage holiday, and national banks’ support. Governments encourage commercial banks to ease their clients’ financial burden by all possible means.

In addition to operational and workforce challenges caused by coronavirus effects, banks have to administer the ungrateful subsidies distribution duty that was assigned to them by the government. Nonetheless, banks seem to be the most prepared for sudden downturns due to the financial crisis in 2008. And, being the heart of commerce, the banking system can become the saving boat, if coronavirus pandemic doesn’t last long to empty it

BANKING INDUSTRY NEWS. ARE THEY GOOD OR BAD?

The coronavirus disease crisis might have given banks an opportunity to repair their public image that was corrupted during the financial crisis of 2008. But it also brings new reputational risks.

As the transmission mechanism for doling out state aid, they will be required to perform a thorny task: deciding which companies should receive financial assistance and which would have struggled to survive regardless of the virus, and should, therefore, be cut loose. “Picking winners and losers” role could provoke a long-term public and political backlash against the banks.

Regulators around the globe understand the challenge and are already relaxing rules for banks. For example, on March 12 the European Central Bank (ECB) announced that banks can fully use their capital and liquidity buffers. Banks will be temporarily allowed to operate below the level of capital defined by the Pillar 2 Guidance, the capital conservation buffer, and the liquidity coverage ratio. The ECB also recommended that national authorities relax their required countercyclical capital buffers.

In Asia, the Bank of Japan has loosened the monetary policy through conducting various operations including purchases of Japanese government bonds, US dollar funds-supplying operations, exchange-traded funds, and real estate investment trusts.

In the United States, regulators have offered support for firms that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner, stating that these buffers were designed to support the economy in an adverse situation; this will also allow banks to continue to . . . keep reading here