COVID-19 impacts on the Banking industry
The COVID-19 pandemic is causing widespread concerns, uncertainty and economic hardships for businesses and communities across the globe. Fed and other central banks across the world have already cut interest rates to near zero. In the US, the bank regulatory agencies are offering various tools and guidance to support the banks during this crucial time as banks play a critical role in this as stabilizers for their customers, their employees, and for the economy.
The banking industry can anticipate that the bank performance will be impacted across many dimensions like fees, interest revenue, losses, expenses, etc. It is highly challenging to project or predict the exact financial impact given the uncertainty as it unfolds, and also that the variances will be substantial by sector and customer segment. Regulators will want to know more about the engagement, capital and liquidity standards are appropriate and risk management is effective.
Banks need to reassess a wide range of models and analyses for the current environment. The assumptions that were built into current models may not hold and banks need to examine their performance assumptions in their existing models. Liquidity coverage ratio (LCR) results should be closely reviewed and compared. Risk-Weighted assets (RWA) may be impacted. Peer comparison is ever more important and the needs for advanced analytics is critical.
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