Banks to weather coronavirus better than 2008 financial crisis: report
Banks are wobbling from the economic wallop being delivered by the coronavirus, but experts say they are unlikely to fall down.
According to data from S&P Global Market Intelligence, the US banking industry will likely see its profits plunge 25 percent this year as locked-down consumers curtail their spending. That, in turn, will make it harder for businesses to to pay off loans to banks, which have already grown less profitable thanks to nearly nonexistent interest rates.
Still, researchers also say that this financial crisis will not be nearly as hard on banks as the crisis of 2008 was — and that’s not a coincidence.
During the 2008 recession, banks weren’t adequately capitalized for the high rate of defaults on loans like subprime mortgages. Now, however, requirements set forth in the controversial Dodd-Frank bill forcing banks to hold more liquidity are serving banks well in the throes of COVID-19.
“The industry is very, very well equipped to handle this,” S&P principal analyst Nathan Stovall told The Post. “This is not a balance sheet issue, it’s an earnings issue. It’s not a pretty picture, but compared to ‘08, it’s much less frightening for banks.”
Earnings will still be a problem, however, as reflected by the stock prices of publicly-listed banks, which as a group have fallen by almost 40 percent since the middle of February.
“Bank CEOs need to be wary of their stock prices,” said one macro analyst. “But they can pay less attention if they’re well-capitalized and don’t need to return money to shareholders right away.”
That’s another silver lining for banks looking to project confidence. The Federal Reserve has moved swiftly to inject cash into the economy, alleviating pressure on CEOs to make risky decisions with their cash reserves. Congress has already made it clear that banks should stop themselves from indulging in stock buybacks while the coronavirus rages if they want help from the federal government.
“The Fed has rolled out every facility it used from 2007 through 2009 in like three weeks” said Stovall. “Banks are being supported here.”
Source : Thornton McEnery Link