COVID-19 - Industry Implications: Finance
The spread of Coronavirus (COVID-19) in the United States will continue causing liquidity and economic slowdown. Banks and financial institutions will be forced to adjust their daily operations to help fight the spread of the virus.
Liquidity and Economic Effect
- A report by Deloitte noted that the United States 10-year bond yield has fallen below 0.5%. The fall of the yield shows increased liquidity stress for both individuals and organizations. As a result, it is speculated that access to credit facilities will be limited thus increasing the chance of default on corporate and private debts in the coming days.
- The Treasury's benchmark yield is expected to decline and has reached 0.318%, the lowest rate in the past 10 years, early last week. Experts warn that the situation will get even worse as the pandemic continues raging, denying the country much-needed investment for the future.
- Due to the continued spread of COVID-19, the United States Federal Reserve has intervened and lowered its benchmark by 50 basis points to a range of 1% to 1.25%. The measure is aimed to enhance liquidity in the market for the coming days.
- Also, an article by Forbes says that now that the virus is widespread, the central bank has adjusted its federal fund rate target range to 0%-0.25%. This move is projected to, “disproportionately impact low-income earners with minorities likely to bear the brunt of the economic impact of coronavirus.”
- Also, banks are requested to extend credit to hard-hit borrowers and renegotiate and restructure credit terms due to the temporary hardship caused by COVID-19.
- With the current situation, COVID-19 will continue causing financial problems, especially for companies with heavy debts due to delayed shipment and production schedules.
The Operation of Financial Institutions
- The United States Security Exchange Commission (SEC) has granted temporary and conditional relief to fund advisers. It has exempted them from “certain filing and delivery requirements under the Investment Advisers Act and from in-person meeting and certain filing requirements under the Investment Company Act of 1940.”
- As COVID-19 continues to spread, financial institutions in the United States, like other financial institutions in countries affected by the virus, are advised to allow their staff to work remotely except for functions that must be performed in the workplace. Managers are advised to craft ways to supervise staff working remotely and keep them informed on the company's response toward COVID-19.
- In a statement the Federal Deposit Insurance Corporation (FDIC) requests that financial institutions work with affected customers and communities going forward to help mitigate the adverse effect of COVID-19. One of the proposed efforts is to waive fees such as ATM charges for customers and non-customers, overdraft fees, early withdrawal fees, and late penalty fees on credit.
- Other efforts proposed by FDIC include "increasing daily ATM withdrawal limits", "increasing credit card limits", "easing restrictions on cashing out-of-state and non-customer checks", and "offering payment accommodations".