“Los sistemas financieros que funcionan bien son importantes para lograr un crecimiento económico sostenido. Desempeñan un papel fundamental en la canalización del ahorro de los hogares hacia el sector empresarial y en la asignación de fondos de inversión entre empresas.”
Well-functioning financial systems are important in achieving sustained economic growth. They play a crucial role in channeling household savings into the corporate sector and allocating investment funds among firms.
- Toshihiko Fukui
As the above quote suggests, economic growth and financial growth go hand-in-hand. But keeping in mind the current scenario of pandemics both are at stake. The rapid pace at which the pandemic is spreading and the global actions are taken to curtail it are having an unprecedented impact on the way we live and do business. While it is too early to fully understand the long-term effect of these events, financial institutions across the banking and capital markets, insurance, and asset management sectors must prepare for the TP impact of the '"new normal".
What banks are doing in the covid-19 situation?
The banks have been called upon to support government-led schemes that provide emergency funding loans or stand-by liquidity through loan facilities. With corporate and household indebtedness rising further, so too are banking risks, including credit misallocation, credit losses, and possibly banks' own solvency.
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What insurance industries are doing in the covid-19 situation?
The insurance industry is by its very nature generally well prepared to deal with significant industry loss events, such as the COVID-19 pandemic. As business interruption and contingency claims continue to unfold for general insurers, which could potentially result in a reduced capacity in the market. With a trend towards higher combined ratios and decreasing levels of return on equity because of COVID-19 losses, insurers will need to increase rates, which will result in higher premiums. This has led to some insurers raising additional capital in the market, in anticipation of a 'hardening market' in early 2021
As the COVID-19 pandemic continues to create uncertainty, asset managers in the traditional and alternative sectors are under stress on several fronts. The sector has witnessed the combined impact of massive outflows of assets, as investors focused on liquidity as well as lower asset valuations eroding the stream of management fees. In addition, lower asset valuations are likely to also reduce the level of performance fees available, if any, which have become an important source of income also for traditional funds.
In practice, all financial services institutions (banking and capital markets, insurance and asset management) should monitor the effective distribution of profits or losses by combining existing price setting with outcome testing approaches to monitor the effective distribution of profits/losses across the group's different entities/branches and jurisdictions.
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