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Bigger banks better prepared for COVID-19

Shanghai Daily 徽标 Shanghai Daily 2020/9/17 Tracy Li

The 30 global systemically important banks (G-SIBs) are better prepared to withstand the adverse effects of COVID-19 than the banks as a whole, according to Moody's.

Following years of restructuring and the imposition of new regulations, these banks entered the pandemic with enhanced solvency and liquidity, stronger balance sheets, more cohesive business models and more cogent strategies, according to research by Moody’s Investors Service.

While some were right at the center of the previous financial crisis, these new industry-wide provisions put them in a far stronger position to withstand the current financial situation and economic slowdown.

In the decade since the last financial crisis, the business models (and profitability) ofnbsp;G-SIBsnbsp;have been altered by post-crisis regulation, particularly through higher capital requirements, restrictions on leverage, more discriminating risk-weighting, stress testing and enhanced regulatory oversight.

In response, many big players trimmed their global footprint and rationalized their client base.

“Without question, the deep changes to balance sheets and business models at many of these large institutions made in the past 10 years have been critical to their current resilience, even in light of the breadth of this crisis,” said Peternbsp;Nerby, a senior vice president and co-author of the research.

These banks’ results have also been supported by their role as strong anchor franchises in their home markets.

G-SIBsnbsp;with universal banking business models typically complement those home-market retail deposit franchises with other firmly established businesses — such as nationally diversified consumer and small to medium size business lending operations.

Many have spent years building select institutional businesses that benefit from global scale.

In addition, leading global custody and investment servicing franchises have substantial operating risks but more modest levels of long-term market and credit risk.

While Moody’s said it expects the absolute performance of many G-SIBsnbsp;to decline as a result of the pandemic, it believes that big lenders will generally outperform the universe of rated banks.

The strong liquidity profiles of individual G-SIBsnbsp;have been bolstered by swift action of the world’s major central banks to ease liquidity pressure in financial markets and facilitate the flow of credit as the COVID-19 downturn accelerated.

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Shanghai Daily
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