COVID-19 and the financial system: a tale of two crises

Abstract

This paper compares and contrasts the resilience of the financial system, in particular banks, during the Global Financial Crisis and COVID-19. We show that banks are now part of the solution, rather than part of the problem, thanks to regulatory and institutional reforms over the past decade. Heeding the lessons from the Global Financial Crisis has paid dividends. We outline some early lessons from the COVID-19 crisis for the financial system going forward.

Sustainable Economic Growth Support through Credit Transmission Channel and Financial Stability: In the Context of the COVID-19 Pandemic

“…Financial stability can be defined as follows: (i) the absence of significant fluctuations [34]; (ii) the absence of crisis [35]; (iii) through analysis of the effect of financial stability on macroeconomic conditions [36]; and (iv) using the broad concept of financial stability as closely interrelated to money and the real economy as well as fiscal policy [37]. As it is stated by Gnan (2012), there is a complex interrelationship between financial, fiscal, political, and economic instability-instability in one area may cause instability in another and vice versa [38].…”

How do secured funding markets behave under stress? Evidence from the gilt repo market

“…32 While banks are still net borrowers during both episodes (see Table 2), their net borrowing positions decrease markedly relative to normal times and some of their lending positions are in the highest percentiles of the distribution in Figures 14(c) and 14(d). Indeed, Giese & Haldane (2020) argue that banks were a shock-absorber during the COVID-19 crisis given banks' strong capital and liquidity positions before the crisis struck. The additional liquidity provided by banks via cleared markets ends up with sectors that are clearing members.…”

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“…This includes the impact on the banking system and the ability of banks to support public authorities, banking systems and their customers. The short-term effects will be reduced in the long term, laying the foundations for a rapid recovery of economies (Giese, Haldane, 2020;Estevão, 2020).…”