Analyzing the Impact of COVID-19 on Global Economy

The novel coronavirus COVID-19 has now spread to many countries and remote places. Preparing to limit the damage from COVID-19, Long-term Care Facilities, Nursing Homes, and many more containment strategies been deployed across the globe. While the curing phase of the novel coronavirus is being investigated, the economy and “RETURN TO WORK “strategies have been deployed within compliance of corporate cyber securities. The focus has been to deploy the business continuity planning (BCP strategies) with least impact to current economy and potential clientele engagements.

Assessing the Situation Accurate with Risk Management Strategies and Regulatory Outlook

The COVID-19 virus is unique and cognitively of potential losses, regarding the near-term impacts further situation-Impact on Stress testing and scenario management for Banks: Creating the new operating model with least impact on current business vs potential recovery is hard to balance for financial institutions. The immediate steps are to have accurate and relevant stress testing completion as need of the hour. Each stress test to create stress test scenarios, risk mapping, and grading. At short and long term phased out risk assessment to be completed based on the Industry vertical (Banking, Tourism, hospitality, FMCG, etc).Identifying the specific losses in immediate and long term strategies of the organization.

Impact on Financial Sector and EU Economy

On March 12, 2020 the European Banking Authority (“EBA”) published a statement on actions to mitigate the impact of COVID-19 on the EU banking sector1. The EBA, in seeking to “alleviate the immediate operational burden for banks at this challenging juncture”, recommends that national regulators “make full use, where appropriate, of the flexibility embedded in the regulatory framework to support the banking sector.”

  • EU-wide stress test postponed to 2021 to allow banks to prioritize operational continuity
  • Competent authorities should make full use, where appropriate, of flexibility embedded in existing regulation
  • The EBA recommends that national regulators exercise their supervisory activities “in a pragmatic and flexible way, and possibly postpone those deemed non-essential”;
  • The EBA will allow national regulators to “give banks some leeway in the remittance dates for some areas of supervisory reporting, without putting at stake the crucial information needed to monitor closely banks’ financial and prudential situation”;
  • Regarding the regulatory framework, the EBA recommends that banks use the liquidity coverage ratio (LCR) designed to be used under stress. Additionally, the EBA recommends that national regulators should avoid any measures that may lead to the fragmentation of funding markets; and
  • The EBA will allow flexibility in the implementation of the EBA Guidelines on management of non-performing and forborne exposures. However, the EBA considers “crucial that the classification of exposures accurately and timely reflects any deterioration of asset quality”. Data quality and reporting accuracy need to be maintained in all circumstances.

European Securities Markets Authority (ESMA) 

On March 11, 2020, the European Securities Markets Authority (ESMA) announced the following recommendations to market participants:

  • To be ready to apply their contingency plans, “including deployment of business continuity measures, to ensure operational continuity in line with regulatory obligations”;
  • To immediately disclose relevant significant information regarding the impact of COVID-19 on “their fundamentals, prospects or financial situation in accordance with their transparency obligations under the Market Abuse Regulation”;
  • To transparently report on the actual and potential impact of COVID-19 on business activities, financial situation and economic performance in their 2019 year-end financial report (if not yet finalized in their interim financial disclosures); and
  • (For asset managers) To continue to apply risk management requirements and related obligations.

Shifting the Focus on Securing Core Operations

The EU Banking Authority For 2020 will carry out an additional EU-wide transparency exercise in order to provide updated information on banks’ exposures and asset quality to market participants. In addition, the EBA recommends CAs to plan supervisory activities, including on-site inspections, in a pragmatic and flexible way, and possibly postpone those deemed non-essential. CAs could also give banks some leeway in the remittance dates for some areas of supervisory reporting, without putting at stake the crucial information needed to monitor closely banks’ financial and prudential situation.

Regulatory Outlook and Interpreting Existing Regulation

The current unforeseen situation will have long term impact on all asset classes at all levels and asset quality-EU has given the perspective on the maximizing the current regulatory flexibility and few extracts are: The ECB-Banking Supervision’s decision to allow banks to cover Pillar 2 requirements with capital instruments other than common equity tier 1 (CET1) is an example. The use of Pillar 2 Guidance is another way to ensure that prudential regulation is countercyclical, and banks can provide the necessary support to the household and corporate sectors.

It is crucial that the classification of exposures accurately and timely reflects any deterioration of asset quality. There is, however, flexibility in the implementation of the EBA Guidelines on management of non-performing and forborne exposures and the EBA calls for a close dialogue between supervisors and banks, also on their non-performing exposure strategies, on a case by case basis.

Impact of COVID in US Financial Organizations, Banking industry

Operational Resilience and new Operating module with GRC compliant are critical breakthroughs in financial systems across the globe. There is a tremendous impact on demand and supply along with the collateral impact on the equity, bonds, stock window light further lockout in Asian, EU and US markets will push a couple of quarters in recover modes for the entire global economy. When those factors are added to the economic disruption needed to fight the virus, the United States will likely see one of the sharpest economic contractions in its history this March, continuing through the second quarter of 2020. The open question will be how quickly restrictions on activity are lifted and whether the economy can snap back; both will depend in part on policy responses.

The recent facts: The People’s Bank of China (Pubic) has also pumped more than US$240 billion of liquidity into the financial system as a countermeasure to the virus.8 Additionally, the Bank of England and the European Central Bank (ECB) have announced various plans to counter COVID-19 in the coming days.

Image Source: CSBS.org

Conclusion

Any changes in demand and supply or hit in spend and buying power has a direct impact on the global economy, COVID is an unforeseen pandemic which is impacting several lives. Historically the global economy has recovered from several hits. As we see operational resiliency as current strategy to recover economic conditions, the futurist economic conditions will need stronger collaborative and technical strategies to see the global economy is uplifted at all levels. We see a lot of technology disruption as well. New changes in the way we do business for insurance, capital market classifications and banking will be focused with smart fintech interventions.