To overcome the crisis, the banks will also have to be helped, otherwise they will quickly stop funding the economy. It is the great fear of the ECB and Brussels which unveiled a plan in this direction yesterday.
The Covid crisis has shut down whole swathes of the economy ... but not the banks. The big fear now is that the virus is also affecting the banking world.
And that would obviously be catastrophic because unlike the great crisis of 2008, where the banks were at the heart of the problem, this time, they are part of the solution. It is to them, in fact, that states turn to keep tens of thousands of businesses afloat and distribute guaranteed loans. Banks, basically, keep the economy under artificial respiration. But how long will they last? The crisis will cause a wave of corporate bankruptcies in the coming months, bankruptcies synonymous, for the banks, of unpaid loans. And this is how this Covid-19 crisis could become financial and banking.
A scenario that Brussels wants to avoid at all costs…
Yes, a plan was presented yesterday by the Commission to help banks deal with this wave of unpaid debts which is coming. Banks in the United States hastily built up $ 25 billion in reserves to absorb the shock of these coming bankruptcies. Banks in Europe are doing the same thing. The European Central Bank is also considering the creation of what is called a “bad bank”, that is to say a sort of public trash bank that would recover bad debts that plague bank accounts. Why help them? Because a bank in difficulty is a bank that lends less. But if we want to have a chance to recover from the crisis of the century, we will need credits. There would be nothing worse than adding a financial crisis to the economic crisis that falls on our heads.