Bank’s funding and revenue prospects in the low for long era

The COVID-19 crisis has extended the likely period of ultra-expansionary monetary policies, while at the same time keeping banks’ net interest margins narrow for an indefinite period of time. Credit default ratios will rise due to the COVID-19 crisis over the medium-term, thus lowering banks’ equity ratios. While dividend moratoriums prescribed by regulators in principle bolster banks’ capital, they make investment in bank equity less attractive and create a gap between the remuneration of bank equity and subordinated capital.  The response to the COVID-19 crisis testifies that the post-GFC regulatory reforms were successful in bolstering banks’ capital and in reducing pro-cyclicality. At the same time, there remains room for improvement. For instance, the combination of bank financing and government credit guarantees worked very well in some countries, while in others it did not run so smoothly.

Organising committee
Gonzalo Gasos, European Banking Federation
Ernest Gnan, OeNB and SUERF
Carl-Christoph Hedrich, Commerzbank and SUERF