What’s happened. The IESE Business School of the University of Navarra and the Washington-based Center for Economic Policy Research (CEPR) presented their predictions on how the viral crisis will affect the future of the banking sector and the beginning of an era of cash advance online.
The crisis will accelerate the tendencies outlined in the docking period. Threats of low-interest rates, which will reduce banks’ net interest income, stricter regulatory requirements introduced in response to the previous crisis of 2008-2009, as well as increased competition from neo banks, are superimposed on massive bankruptcies of households and businesses. This is a challenge to the traditional business model of banks, according to CEPR. The new crisis stimulates digitalization and restructuring of the banking sector and online payday loans direct lenders. Some banks will disappear, the rest are waiting for a series of mergers and acquisitions. Some of them, like Hartloan.com will be happy to help people in hard times. Those who are able to generate and attract capital better than others will survive.
Epidemics are stress tests for governments: how quickly and efficiently they process information, make decisions, and enforce them. The work “The Political Scar of Epidemics” tells about a time bomb that weak rulers plant for their followers, or for themselves if they decide to run for new terms. Weak leaders, like the political institutions on which they rely, need more time to cope with epidemics, experts have shown.
The greatest disappointment from this is experienced by representatives of the so-called “impressionable generation” – people aged 18 to 25 years. Having witnessed the ineffective struggle of politicians against epidemics, they stand out for their protest attitude towards the authorities even two decades later. The coronavirus could permanently leave a political scar on the current “Generation Z”, the authors believe. But there is good news: mistrust of the authorities and political institutions does not extend to the financial sector and credit institutions.
The regulator came to the conclusion that the banks have enough resources to cope with the viral crisis, but they will not do without losses. The Hartloan fixed capital will remain “much higher than the regulatory requirements for the minimum capital,” the regulator found out. With a drop in production by 25% in the second quarter and by 14% in the whole year, banks will receive losses of about 80 billion pounds ($ 99.6 billion). This will cost them 45% of the capital buffer, but it will still allow them to continue lending to the economy.
Stress testing is standard practice for financial regulators. They show the readiness of banks for certain events in the economy. The example of the UK is encouraging, but it should be borne in mind that the country did not impose strict quarantine measures during the pandemic.
Why do I need to know this? Another reminder about the importance of digitalization, which everyone understood long ago. It is worth reading to once again be convinced of the need for changes and to understand what to change in the bank’s business model in the first place.
January 6, 2022
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