Banks are playing a central role in the COVID-19 crisis, just as they did a dozen years ago during the financial crisis.
There is one key difference, however: This time, banks are not the source of the crisis and are in much stronger shape to be a big part of the solution.
I believe that banks will help propel the eventual global recovery and allocate investment toward new drivers of growth.
As we stare in the face of this daunting pandemic and its unfortunate consequences, the first priority of Credit Suisse is the well-being of our employees and clients. I am proud of how our teams have pulled together to support each other and meet the unprecedented demand for thoughtful analysis and tactical advice that are helping clients navigate this crisis.
As the immediate health emergency is contained and passes, banks must supply credit for private and public investments that will power a jobs-rich rebound.
Banks suffered a reputational hit after the financial crisis, and rightfully so. We took too many risks without properly pricing them. Since then, we have de-risked our balance sheets and increased capital buffers, both for our own viability and to meet stringent post-crisis “too big to fail” regulations.
I believe that banks will help propel the eventual global recovery and allocate investment toward new drivers of growth.
Bankers, including me, did our share of complaining about some of these burdens. Still, they put us in a much better position to perform a necessary function amid the current crisis: investing in our clients.
In Switzerland, we built on this more-stable foundation, harnessed digitalization, and initiated a public-private partnership that had Credit Suisse and other Swiss banks distribute some 14 billion francs of government-guaranteed bridge loans to 76,000 small- and medium-sized businesses within just the first week. With the facility increased to 40 billion Swiss francs ($41 billion), we’re just getting started but know that quickly deploying these loans is providing much needed relief to a range of businesses struggling to retain employees (these are five-year 0 percent interest loans up to 500,000 Swiss francs, with only a small rate charged on larger loans). Credit Suisse helped develop this initiative from its early stages and pledged to donate any net profit derived from the program. Switzerland was able to use an existing platform for export insurance, and state guarantees reduced the need for onerous credit checks. Regulators also made common-sense changes to capital rules, freeing up money for lending without putting the financial system at risk.
The program has exceeded expectations, demonstrates public-private partnership at its best, and provides a template that others might scale and tailor to their country or region’s characteristics.
Given the vast sums central banks and governments are pumping into their economies, banks must allocate this money effectively to minimize the risks of a bursting asset bubble. We must also ensure that businesses are not simply saddled with more debt they cannot repay, swapping one problem with another.
Fortunately, the pandemic shock is different from the 2008-2009 financial crisis. The global economy is fundamentally sound without many of the imbalances that were at the root of previous crises. Unemployment was low around the world heading into March. Household and corporate balance sheets were generally strong. Innovation was driving new industries.
These forces have not changed, and that is good news.
As the health crisis recedes, financial support from banks, either directly through loans or indirectly via investment banks from capital market investors, will enable our clients to recover as rapidly as possible. Companies will need credit to ramp up production and hiring. The shock will undoubtedly lead to some reordering of economies, creating fresh opportunities for entrepreneurs.
Financial institutions will support this transition, ensuring that our clients have the confidence to spend, invest, and hire. Yet banks have a larger role, too. Citizens in many countries are casting doubts about globalization, which has lifted millions out of poverty and spurred innovation worldwide. The COVID-19 crisis has upended global transportation and may cause countries to retreat further within their borders. As a global bank with deep roots in Switzerland, Credit Suisse embraces these dual responsibilities to our home country and as a force for globalization.
To tweak an old expression: Banks need to keep thinking globally even while acting locally.
Our role in the crisis is not a matter of turning bankers from villains into heroes. Rather, it is about executing our core functions of financing growth-enhancing investment and providing security to our customers.
In doing so, we will help cushion the blow from the pandemic and provide the foundation for shared, long-term prosperity.