Financial regulators are formulating plans to cushion the blow of coronavirus including assessing contingency plans, fiscal stimulus and easing the pressure on borrowers.
The arrival of coronavirus has sent tremors through the stock market. Wall Street experienced its worst day since 2008 and the ECB has warned of a collapse on a scale of the financial crisis. It is both a global health and economic crisis and regulators around the world are scrambling to mitigate its impact.
In China, which has had more than 80,000 cases and over 3,000 deaths, the virus is already having a major impact on the financial system and regulatory strategy. Until now, the China Banking and Insurance Regulatory Commission, would scale back its war on bad loans.
Under the leadership of Guo Shuqing, the regulator has worked hard to tackle problems caused by bad loans and excessive leverage. He has been extremely successful but that war will have to wait. The regulator has said that new bad loans created during this crisis should not be considered non-performing loans.
In the second worst hit country, Italy, the focus is also on reducing the pressure on loans. Regulators are planning to introduce a widespread moratorium on debt repayments for consumers and businesses.
The announcement which was made by Italy’s Deputy Economy Minister, Laura Castelli, comes after the entire country was placed under lock down. The Government has also promised to inject €10bn into the economy.
“Keep calm and drink tea” has been the message from the Government who seem happy to “take the virus on the chin”. However, the FCA is taking more proactive action. Earlier in the month, staff worked from home as the city watchdog ran a drill to test its readiness.
The regulator is also focusing on firms’ contingency plans. In an update on its website, the FCA said it was working with the financial services sector, HM Treasury and the Bank of England to review their responses to the virus.
This will include a review of the operational readiness of firms to assess any operational risks to day-to-day operations.
Meanwhile, at his confirmatory hearing for the Bank of England position, outgoing Chief Executive of the FCA, Andrew Bailey, said Coronavirus was the “first most pressing issue we face” and that it was evolving in “unprecedented and unexpected fashions.”
The severity of the situation, he said, suggested that at some point the bank may have to “focus on providing supply chain finance to ensure the shock effects of the virus are not damaging to too many forms of activity and we will have to move quickly to do that.”
That stimulus wasn’t long in coming. Announcing his budget, the Chancellor, Rishi Sunak, announced a stimulus package totalling £30bn including £7bn for businesses and families and £5bn for the NHS. There will also be changes to sick pay regulations with statutory pay available from day one of self-isolation.
Regulators in the States have called on banks to ensure customers and members who are affected by the virus get the funding they need. In a joint statement, multiple agencies including the FDIC, Consumer Financial Protection Bureau, the Conference of State Bank Supervisors, the Federal Reserve, National Credit Union Administration and Office of the Comptroller of the Currency, said they would provide regulatory assistance to financial institutions, under their supervision, in meeting their financial needs.
The ECB’s Christine Lagarde has called for more coordinated action between European states on the crisis. Speaking by video to European leaders, she warned that without urgent action the virus could cause an economic collapse on the scale of 2008.
The EU is also considering using flexibilities in its state aid rules which are allowed in exceptional circumstances. Officials are drafting a list of targeted options which members could support those states hardest hit by the coronavirus.
Among the schemes which may require state aid clearance from the commission are discounted government loans, tax credits, or deferral of tax payments.