Stability in the storm: US banks in the pandemic and the next normal by Kevin Buehler, Miklos Dietz, Marie-Claude Nadeau, Fritz Nauck, Lorenzo Serino, and Olivia White published by McKinsey & Company (5/2020).
“Banks will be tested. Now is their chance to use their hard-won resilience to preserve the financial system and support their customers and communities.
The humanitarian and economic fallout of the COVID-19 pandemic has upset the global balance. No person, industry, or aspect of society remains untouched.
The banking industry can uniquely act as a primary source of stability. Banks guard savings and investments, provide sound credit and financing, deliver safe and secure payments and transaction services, and offer trusted advice. They are not simply commercial enterprises but providers of important services to individuals and communities, playing a vital role in the functioning of the economy.
Banks in the United States entered the COVID-19 crisis with the strength of ample capital and liquidity and have moved rapidly to protect their employees and customers. Most have shifted the majority of their workforces to remote work and have closed or reduced capacity at branches while also dedicating hours to serving high-risk customers. Individuals and businesses have received forbearance where needed, and banks have served as critical conduits for the liquidity provided by the Federal Reserve and for the credit and loan forgiveness offered via the Paycheck Protection Program and the Main Street Lending Program. As such, in the early phases of the pandemic, US banks have largely been living up to societal expectations.
Yet the challenge to come is daunting and the path uncertain. Unemployment has hit levels not seen since the aftermath of the Great Depression. More than 25 percent of small businesses anticipate declaring bankruptcy in the next six months. Hardhit industries, such as oil and gas, travel, and retail, may be forever reshaped. For banks, near-zero interest rates and a flattened yield curve mean diminished net interest income. Credit losses could exceed $1 trillion. Recovery, when it comes, will vary in speed and intensity across industries and regions. The lasting effects will linger for many years— perhaps a decade or more.
As our colleagues have suggested, meeting the challenge will require disciplined thought and bold action. So far, banks have acted swiftly and with resolve to meet the first acute phase of crisis. Now, they must show resilience under great uncertainty, beginning the return from lockdown and reimagining their new postcrisis future. Amid widespread economic struggles and heightened disparities, banks have the opportunity to rediscover their purpose and reform their contract with society, providing stability in the pandemic storm…”
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