How much can we rely on the banks to support the real economy, during and after COVID? Policy makers and regulators face some difficult questions as they determine where the burden of economic stimulus should lie, as we see non performing loans (inevitably) increasing. A sustainable banking sector, able to innovate and pivot to serving the new normal economy, will be essential. James Worsnip previewed our point of view in CityAM.
| less than a minute read
How much burden can we place on banks?
The banks’ role in funding the economy through CBILS and Bounce Back Loans has allowed businesses that might otherwise have failed to continue. Forbearance — the decision not to enforce rights against troubled borrowers — across many credit markets has also enabled businesses and consumers to avoid insolvency — or has, at least, given them more time to adapt. But with businesses and individuals alike struggling to avoid the economic impact and financial distress that the pandemic has brought, the banking sector has reported additional loan losses. These amount to £18bn for the first half of 2020 alone, while the Bank of England estimated (in its May 2020 central case) that Covid-related loan losses may tally up to as much as £80bn.