Banking and Finance after COVID-19

Abstract

The COVID-19 crisis has had a major impact across all sectors of the economy. For the most part, businesses and households have been affected negatively; although some, notably online retailers and streaming platforms, have significantly increased their profits. Alongside health care and the pharmaceutical industry, banking and finance will be essential for helping the real economy to get through the crisis, and for paving the way to economic recovery and a return to a more normal life. The liquidity generated by the vast stimulus and rescue programmes launched by governments and central banks around the world has to be channelled to businesses and households. To have any chance of financial survival, businesses and households in lockdown need leniency with their existing credit arrangements; new credit should flow freely. When the pressures of the pandemic eventually subside, the ensuing recovery will have to be funded largely through the money supply provided by commercial banks. To accommodate these needs, banking and finance law had to be adjusted, affecting both minute regulatory detail and broader private law principles. Overall, this process is part of a remarkable transformation: the villain of the Global Financial Crisis (GFC) has become one of the saviours during COVID-19. Caused by the excesses of the banking and finance sector, the GFC triggered regulatory intervention on an unprecedented scale. A key element has been enhancing institutions’ resilience and ensuring that any losses are predominantly borne by the institutions themselves, their investors and management (Part II below). During COVID-19, banks are no longer the problem, but an essential part of the solution: regulatory measures brought in only recently have to be relaxed and loan losses may have to be socialised again (Part III below). However, in the long term this will not be sustainable. In the aftermath of COVID-19, a new equilibrium will have to emerge where nonviable businesses can go insolvent and distressed banks can fail with as little public