Medium-sized Banks Communicating About COVID-19
Impact on Small and Medium-sized Bank During the COVID-19 Crisis
What are 3-5 ways that small to medium-sized banks are planning to make a comeback after the crisis is over?
- Amidst proactively asking their clients about the impacts of coronavirus and assessing risk, banks are already looking at ways to leverage new debt deals. The recent emergency rate cut by the Federal Reserve has led to lower interest rates, which in turn has increased corporate appetite for issuing and refinancing debt. Total debt deals totaled $30 billion in the first week of March compared with roughly $90 billion in all of February, according to IFR data. According to sources, Bank of America participated in roughly 20 investment-grade debt deals this week.
- Offering relief to customers experiencing hardship right now is a way that banks are insulating themselves from added instability to the economy and future impacts. This is a strategy many banks are currently taking and although not necessarily a comeback strategy, it helps reduce the crisis and makes the comeback effort easier. Many have set up help page's outlining the various options that are available — Bank of America's Help Page, Chase's Help Page.
- Banks will be taking advantage of the naturally healthier financial state they were in prior to this crisis to recover more quickly. Unlike the 2008 financial crisis, "banks are well positioned to withstand any financial losses that may come from the coronavirus, putting them in a position to continue lending to consumers and businesses through what could become a recession". The Fed administers "stress tests" on the country's largest lenders as a measure to prevent future financial crises — in June, they "modeled the losses of America’s 18-biggest banks against a severe economic shock, which included a 10% unemployment rate, a 10% contraction in the economy, a 25% fall in home prices and a 50% drop in the stock market, among 28 total variables." and although they would lose money, it was shown that "modeled the losses of America’s 18-biggest banks against a severe economic shock, which included a 10% unemployment rate, a 10% contraction in the economy, a 25% fall in home prices and a 50% drop in the stock market, among 28 total variables." This data, along with the fact that banks are not carrying as much risk as they once did, are signs that banks are well positioned to make a more rapid comeback post-crisis, and additional measures they're taking now will ensure this.
What are 2-3 insights into how banks are using products and services such as mobile banking apps to engage and attract more high-end clientele during the coronavirus crisis?
- Many banks have existing products and services in place for their customers, high-end or not, to manage their banking online. Banks are now making additional effort to educate their customers on the options available to them. This is very important with vulnerable demographics who would otherwise be going into a branch to do their banking. One very interesting trend presented here is virtual meetings with a banker to answer your questions and help with banking needs, which may be of great value to high-end clientele who will most likely have more complicated needs.
- Many banks are planning for additional digital product and services they can bring to market and prioritizing development to address the changing needs of customers amid this crisis. Such products and services take time to develop and may not be of immediate impact, but as customers are becoming more accustomed to digital services, they will be useful regardless. There are also futurists like Brett King who believe that banking will become an embedded experience where bank and non-bank providers will be vying to eliminate friction in people’s use of financial services, and we may be seeing ideas like this becoming more prevalent.
What are 2-3 ways that banks have been affected by social distancing and self-quarantine prompted by the coronavirus crisis? (i.e. products that have experienced a sharp drop in sales, low loan volume, profit revisions or fear of absorbing losses, etc...)
- So far, the banks have been weathering the storm of the crisis fairly well so far, but they "can only be a fortress for so long" and will be tested as matters get worse. Some areas that regulators like the Fed are looking at are "rise in loans to companies that are already highly indebted, as well as the volume of corporate bonds that are so risky that mutual funds may not be allowed to hold them."
- Naturally, with social distancing and both mandatory and self-imposed quarantine, some banking customers are no longer visiting branches and in concert with that, banks are closing some locations and reducing staff at others, resulting a drop in sales due to limited branch availability and open times.
- As a result of general fears around the state of the economy and an uncertain future, there's fear on both the banks side and consumers. "Banks need to be preparing to defer payments from small businesses and people who might be late on mortgage or credit card payments, something their regulators last week encouraged them to do. Some banks have already announced rate reductions on loans for vulnerable borrowers."
- Avoid Corporate Debt, JPMorgan Tells Clients. And Get Into These Assets.
- Fed Unveils Emergency Lending Programs as Companies Struggle to Raise Cash.
- Regulators consider loosening bank liquidity rules amid coronavirus crisis, could boost loan volume.
- Is the Coronavirus Crash Worse Than the 2008 Financial Crisis?
- The Social Distancing Economy: Q&A with RAND Experts.
- Leadership in the time of coronavirus: COVID-19 response and implications for banks.