Maintaining Banking System Safety Amid the COVID-19 Crisis

Must Read

2020 Brand Africa 100: These are the 10 most admired brands in Africa

NIKE RETAINS #1 IN AFRICA FOR THIRD YEAR IN A ROW AFRICAN BRANDS DROP BY OVER 60% IN...

List of Guaranty Trust Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number that usually identifies both the bank and the branch where an account is...

List of Access Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number which usually identifies both the bank and the branch where an account is...
Maintaining Banking System Safety Amid the COVID-19 CrisisMaintaining Banking System Safety Amid the COVID-19 Crisis

Today we face economic upheaval potentially more severe than we witnessed during the global financial crisis. The coronavirus pandemic is a different kind of shock. Never before have modern economies shut down at the drop of a hat. From one week to the next, many workers lost their jobs and paychecks. Restaurants, hotels, and aeroplanes all emptied. And consumers and businesses now face steep losses in income—and potentially widespread bankruptcies.

Pressure on the banking system is growing and higher defaults on debt are imminent. And many now expect a shock to the financial sector similar in magnitude to the 2008 crisis.

The question on the minds of policymakers is how they should prepare for this.

Just over a decade ago, global policymakers came together in an unprecedented display of coordination to launch the development of a revamped regulatory framework for the financial sector. They significantly raised the minimum standards for the quality and quantity of bank capital and liquidity and succeeded in building a more resilient banking system designed to hold buffers above the minimum that could be safely drawn down in stressed conditions.

- Advertisement -

In the current crisis, national authorities are taking a host of measures to provide fiscal support, and central banks are opening new liquidity lines. How should bank supervisors respond to ensure continued trust and confidence in the banking system?

Banking system prescription

Like health experts, bank supervisors are responding to a fast-moving and extraordinary situation. Supervisors must combine the tools from their playbooks for dealing with natural disasters, operational risk events, and bank stress episodes. With its global vantage point, and drawing from past experience, the IMF can offer some additional guidance on the way forward:

  • Don’t change the rules. Doing this in the midst of a crisis will likely cause more confusion. Likewise, be prepared to give banks time to meet rules if they fall short, and hold off on implementing new initiatives—banks should remain focused on maintaining ongoing operations, given the increased difficulties of conducting such operations remotely.
  • Use buffers. Regulators have to communicate clearly that capital and liquidity buffers should support continued bank lending, without adverse consequences for bank management. Banks built these buffers well above Basel minimum standards to manage strains on liquidity and revenue loss from missed loan repayments.
  • Encourage loan modification. Supervisors should clearly communicate to banks to be proactive in rescheduling their loan portfolio for those borrowers and sectors that have been hard hit by the severe, but temporary, shock. They should also remind banks about flexible credit risk management and the accounting standards for impairment in these situations. Accounting bodies have helpfully stepped in to clarify to auditors how such modifications should be viewed once the economy begins to recover.
  • Don’t hide the losses. Banks, investors, shareholders and even taxpayers have to bear them. Transparency helps prepare all stakeholders; surprises only worsen their response, as was proven during the 2008 crisis.
  • Clarify regulatory treatment of support measures. Clarifying upfront how banks and regulators should treat fiscal measures, including measures directly targeted at borrowers, credit guarantees, payment holidays, direct transfers and subsidies—beyond any current guidance in the Basel capital framework—would help with overall transparency.
  • Strengthen communication. Encourage continuous dialogue between supervisors and banks, especially in this unprecedented situation of working remotely with colleagues, customers, and supervisors. Typically, reporting requirements in key areas, such as liquidity and creditor positions, are enhanced in a crisis, but given operational disruptions, deferring other reporting requirements less material to assessments of financial health may make sense.
  • Coordinate across borders. Banking is a global business. Broad coordination among national regulators at the international level is imperative. This crisis will pass eventually, and the effects may take time to dissipate, but preserving the integrity of the international framework will be crucial for the credibility and integrity of the global financial system. International bodies like the Financial Stability Board and the Basel Committee on Banking Supervision are working night and day to do just this.
Read Also:  September Economic Report: Nigeria faces a less welcoming external environment
Read Also:  Mouka Continues To Add Comfort To The Lives Of Its Consumers During The Covid-19 Pandemic

Will it be enough?

- Advertisement -

Simply put, it may be too early to tell. At this point, conditions in many countries are as severe as the adverse scenario of the stress tests that banking regulators commonly use to assess the strength of their banking systems.

And it might get worse.

All of this assumes that economic activity could restart later this year, but we have to also consider more adverse scenarios. Under more severely strained circumstances, we will have to rethink our playbook substantially. Some banking systems might have to be recapitalized or even restructured. The IMF has deep experience in helping countries rebuild distressed banking systems through its technical assistance programs and will stand ready to help.

- Advertisement -
Maintaining Banking System Safety Amid the COVID-19 CrisisMaintaining Banking System Safety Amid the COVID-19 Crisis

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Maintaining Banking System Safety Amid the COVID-19 CrisisMaintaining Banking System Safety Amid the COVID-19 Crisis

Latest News

GeTS helps GEODIS to simplify cross-border trade declarations and Customs connectivity through CALISTA™

SINGAPORE - Media OutReach - 26 May 2020 - Global eTrade Services (GeTS), a global trade platform company, announced the onboarding of...

TAJBank Announces Issuance of N150 Billion Naira FGN Sukuk

TAJBank, Nigeria’s most innovative Non–Interest financial institution has announced a 150 million naira Sukuk Bond as appointed by the Federal Government of Nigeria. This will...

Global Finance names Ecobank Most Innovative Bank in Africa

The announcement was made at the eighth Global Finance annual awards, the Innovators 2020, honouring entities that regularly identify new paths and design new...

April 2020 Inflation Review – Inflation Accelerates Amid Pandemic Risk, Ramadan Arrival

In the latest report from the National Bureau of Statistics (NBS), the overall consumer price index - a measure of the average change in...

2020 Brand Africa 100: Africa’s Best Brands Highlights

AFRICAN BRANDS DROP TO ALL TIME LOW 13% NON-AFRICAN BRANDS ACCOUNT FOR 87% OF THE TOP 100 BRANDS IN AFRICA NIKE RETAINS #1...
- Advertisement -
BrandsPur Weekly Cartoons
- Advertisement -Maintaining Banking System Safety Amid the COVID-19 CrisisMaintaining Banking System Safety Amid the COVID-19 Crisis