Banks will have to manage the long-term effects of the Covid-19 crisis by working together across disciplines. Cooperation is crucial, now more than ever.
The global Covid-19 pandemic is a battle on multiple fronts for banks. As with all companies, the wellbeing of their employees is their first priority, together with assuring the continuity of daily operations. The switch to a new (remote) way of working and higher risk of absenteeism pose a direct and significant operational risk. Secondly, part of their clients face immediate financial problems, which has led to an overnight increase in expected credit losses. Banks are expected to manage their credit risk in a diligent way and hence protect the assets of their depositors, while at the same time, banks have responsibilities to society at large. As business continuity is critical, banks need to keep the financial system going in the short term. In addition, banks are expected to be lenient to companies and individuals who are under financial distress due to the crisis in order to minimize negative social and economic impact.
At this moment, companies, banks and governments are executing and updating their business continuity plans in order to sustain the crisis, knowing that unforeseen issues are everywhere. But by and large, banks appear to be well-prepared to quickly adapt to the new situation. Also, over the past days various institutions have published useful material on this topic. In this article, we will zoom in on comprehensive 'Covid-19 risk management' for banks. This requires a combined short and long term view on risk management, and a multidisciplinary task force to cover all issues that banks will be faced with.
At the moment of writing, we are still in what appears to be the early stages of the Covid-19 crisis. Therefore, we cannot provide a complete list of issues that banks face. Rather, we want to mention the areas with a high probability of being impacted, and those with large financial, operational or technical consequences.
At this moment no one will have definitive answers to the questions and dilemmas raised above. We know from experience, however, that today's challenge do not respect the boundaries of traditional silos in the bank. Cooperation between departments is a good market practice in all situations. In response to the Covid-19 crisis, forming a multidisciplinary task force may be key to be prepared for the insecure times ahead and to solve pressing short term issues without hampering long term stability of the bank.
Please contact Joost Lensen for any queries.
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