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30 March 2021
Banking regulation and Post-Covid-19 crisis
The COVID-19 pandemic has caused an unprecedented human and health crisis. The measures required to contain the virus led to an economic downturn. At this point, there is great uncertainty about the severity and duration of the pandemic. According to the latest World Financial Stability Report, the financial system has already been significantly impacted and an intensification of the crisis could undermine global financial stability.
Since the beginning of the pandemic, the prices of risk assets have fallen sharply: risk assets have suffered losses equivalent to at least half of the losses incurred in 2008 and 2009. For example, many stock markets (in both large and small countries) recorded declines of 30% or more. Credit spreads soared, especially for lower-rated companies. Tensions also emerged in the main short-term funding markets, including the global dollar market.
Volatility has skyrocketed due to the uncertainty surrounding the economic impact of the pandemic. As a result of this situation, market liquidity deteriorated sharply, including in markets that are generally perceived to be very active, causing asset prices to move sharply.
Globally, to preserve the stability of the financial system and support the economy, central banks have been the first line of defense. First, they have eased monetary policy significantly by lowering policy interest rates. Second, central banks have provided additional liquidity to the financial system, including through open market operations. Third, several central banks agreed to increase the provision of dollar liquidity through swap arrangements. Finally, central banks have reinstated facilities that were used during the global financial crisis and have launched a series of new global programs, including the purchase of riskier assets such as corporate bonds. By effectively assuming the role of buyer of last resort in these markets and helping to control upward pressures on the cost of credit, central banks are ensuring that households and businesses continue to have access to credit.
These measures to contain the fallout from the pandemic have reassured investors in recent weeks. Tensions in some markets have eased somewhat and prices for risky assets have partially recovered. However, this renewed confidence is fragile, and global financial conditions continue to be much more restrictive than they were at the beginning of the year.
Also, companies experience difficulties, and default rates rise, credit markets could suddenly freeze, especially in risky segments such as high-yield bonds, leveraged loans, and private debt. Since early March, spreads on high-yield bonds have soared despite recent declines, especially in sectors most affected by the pandemic, such as air travel and energy. Similarly, the prices of leveraged loans have fallen sharply. As a result, credit rating agencies have revised upwards their default forecasts for risky bonds to recessionary levels, and defaults derived from market information have also risen sharply.
Banks have more capital and liquidity than in the past, and have been subject to stress tests and stricter supervision in recent years: they are therefore better equipped than at the beginning of the global financial crisis. Moreover, in many countries, large-scale and coordinated liquidity provision by central banks to banks should also alleviate potential liquidity pressures.
Nevertheless, the resilience of banks could be tested by a pronounced slowdown in economic activity, which could prove to be more severe and protracted than currently expected.
Overall, the sharp tightening of global financial conditions since the beginning of the COVID-19 epidemic, combined with the sharp deterioration in economic prospects, has shifted the distribution of global growth to the left. This means that the risks to growth and financial stability have increased considerably.
As is often the case in times of financial difficulty, emerging countries are likely to pay the heaviest price. Indeed, they have experienced the largest reversal in portfolio investment flows ever recorded, which is causing great hardship for the most vulnerable countries.
Tentative Table of Contents
- Banking regulation
- Government Support and banking risk
- Banking regulation: what about Islamic banking?
- Banking regulation and financial stability
- Banking regulation and efficiency
- Financial stability
- Banking regulation and COVID-19 crisis
- The new micro-prudential regulation
- The monetary policy of the central bank
- The Role of Central Banks in the Financial Environment
- Monetary policy and prudential aspects
- Fiscal policy and COVID-19 Crisis
- Critical analysis of bank liquidity regulation by central banks
- Banking regulation in emerging markets
- Corporate Social Responsibility and prudential regulation
- Ethics for Banking & Finance
- Financial Risk Management
- Financial & banking products’ features and innovation
- Accounting, banking, and finance
- Banking and finance
Objectives, Impact, and Value
The primary aim of this special issue is to consolidate knowledge in financial stability and strategy of the central bank, which has seen a resurgence with the integration of macro-prudential regulation. Combining regulation, stability, efficiency, and risk-taking in the banking sector topics into one special issue provides the reader with a holistic understanding of the new developments in these emerging fields. This study will be written for professionals who want to improve their understanding of the importance of banking regulation.
Together, fiscal, monetary, and financial policies must aim to mitigate the impact of the COVID-19 shock and ensure a stable and sustainable recovery once the pandemic is under control. Continued close international coordination will be essential to assist vulnerable countries, restore market confidence, and limit risks to financial stability.
Central banks will remain crucial to preserving the stability of global financial markets and the flow of credit to the economy. But this is not just a liquidity crisis. It is mainly about solvency, at a time when large segments of the global economy are at a complete standstill. Consequently, fiscal policy has a vital role to play.
Target Audience and Potential Uses
The target audience of this special issue will be comprised of academics, researches, professionals, and practitioners, employed in different fields such as banking and finance, accounting, and many others, including government organizations, with a focus on existing challenges and opportunities.
The target audience groups can be categorized as:
Professional bodies focusing on banking enterprise for areas such as management, regulation, accounting & finance, banking, human resources, and ethics.
University Professors, instructors focusing on finance, and teaching & researching in courses such as management, accounting & finance, banking, human resources, law, ethics, and many others.
Postgraduate and undergraduate students focusing on finance and banking in courses such as management, accounting & finance, banking, human resources, law, ethics, and many others.
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