Effects of COVID - on the Banking Sector: The Markets Assessment

Interesting insights in the recent BIS Bulletin on the performance of Banks’ by Iñaki Aldasoro, Ingo Fender, Bryan Hardy, and Nikola Tarashev

The study takes into account stock prices, credit default swap (CDs) and bond spreads, and credit ratings. Following were the key takeaways:

• The recent developments in the equity and debt markets remain similar as experienced after the collapse of Lehman Brothers in 2008.

• The spread on credit default swaps has increased for most of the banks which entered the crisis with preexisting high credit risk levels and the effect remains differentiated across countries.

• The recent stabilization measures since march underlined by forceful policy measures favored banks that were already having a healthy and profitable balance sheet. For the less profitable banks, long term outlook in terms of rating witnessed a revision to negative and the stabilization measures do not seem to improve the spread on credit default swaps for them.

Reference :

Iñaki Aldasoro, Ingo Fender, Bryan Hardy, and Nikola Tarashev (2020): “Effects of COVID - on the Banking sector: The Markets Assessment ”, BIS Bulletin, no 12, May.