Banks in the United States are working to respond to the coronavirus, with that response divided into two efforts: one to protect the banks themselves, and one to support the economy and financial markets.
American banks are developing plans to address potential developments, maintain business continuity, and keep customers and employees informed. Banks are also handling the Federal Reserve’s March 4 primary credit rate cut to 1.75%. Part of the efforts being undertaken include rotating shifts, where workers take turns being in the office.
Banks Focus First on Internal Operations
The first move by many large banks was to restrict travel and keep their employees healthy, reports Banking Dive. Goldman Sachs halted all non-essential international business travel, especially to Italy, China, South Korea, and Iran. Other banks halting travel include JPMorgan Chase, Citigroup, and Bank of America. Morgan Stanley prepped a backup stock trading floor in suburban New York and switched an upcoming investor meeting to be virtual.
“The moves go beyond previous efforts in which banks had been testing and adjusting plans for keeping critical operations open through a potential pandemic, but hadn’t actually implemented them,” notes Bloomberg. “Experts have been urging populations to implement social-distancing measures to limit the spread of the highly contagious virus.”
Bank of America also shifted more than 100 workers to a backup site in Connecticut as a precaution. JPMorgan asked 10% of its staff to work remotely.
Though coronavirus is making headlines, such efforts have grown out of previous lessons learned during natural disasters and the H1N1 swine flu.
In the wake of H1N1, FINRA, a government-authorized not-for-profit organization which oversees U.S. broker-dealers, found that the vast majority of such firms already had pandemic response plans in place and had tested them. Top business challenges were identified as absenteeism, telecom disruptions, remote work arrangements, commuting, and transportation. In early February, the American Bankers Association created a website that lists resources available to help banks prepare for the possible pandemic and its disruptions.
Major Banks Seek Regulatory Relief
Big banks and lobbying groups are also seeking federal help in the form of relaxed regulations.
Some of the changes proposed by the Bank Policy Institute on March 1 include shifts in monetary policy, an easing of liquidity provisions, and modifications to capital regulations.
Changes to those regulations are not without cause. Fitch Ratings on March 3 noted that uncertainty over the intensity, spread, and duration of the coronavirus was already negatively impacting revenue and volatility, and could hit earnings.
“Fitch sees near-term downside to profitability,” the company said in a statement. “While we expect that banks will attempt to be quick in their response to cut deposit and other funding costs accordingly, these actions will not likely be to the same degree that asset yields compress, resulting in lower margins and reducing overall profitability, at least in the near term.”
But those proposals are also not without criticism.
“Some of the proposed changes would allow the banks to reduce the amount of money they must set aside to cover potential bad loans,” noted CBS News, “which is exactly what got the banks into trouble during the crash.”
Related, the Securities and Exchange Commission will give companies impacted by the coronavirus an additional 45 days, or until the end of June, to file first-quarter earnings reports.
But instead of relaxing rules, Dennis Kelleher of Better Markets told CBS, the Fed should force banks to suspend dividend payments and half stock buybacks to ensure they have enough capital to cover bad loans.
“The current unique circumstances,” he said, “require an increase of capital and liquidity, not a relaxing of the rules.”