Right Now, the Investors are attached to their screens as their portfolio stocks are on a rollercoaster run due to the fears of coronavirus pandemic and the relevant actions undertaken by the US Federal Reserve.
Those who have been around for long may be having a kind of déjà vu as the situation of the economy back in 2008 crisis was somewhat similar to this. In the 2008 crisis, banks and financial institutions took down the entire market and had severe effects on the economy, but this time around, it is precisely the opposite.
Banks are used rigorously by the Feds to inject a large amount of liquidity in the market. Such actions, along with the rate cuts, prove that banks are playing a very vital role currently in the economy.
“In the global financial crisis, banks were the problem,” said Mike Mayo, a banking sector analyst at Wells Fargo. “The silver lining from that is that banks are prepared for a situation like this, and they want to be part of the solution this time.”
It will not be wrong to say that banks are adequately trying to redeem themselves after that mammoth of 2008 mortgage fiasco. Big banks like the JP Morgan, Bank of America have admitted to having learned meaningful lessons after the 2008 crisis.
On Sunday, major banks announced that they are looking to post-pone their share buybacks and support the families and businesses that are facing a financial crisis due to the outbreak. This decision alone has saved up to $37 Billion in the banking sector.
This move was, however, seen rather negatively by some investors. “I’ve heard from a lot of people pissed that they pulled their buybacks at the time it makes the most sense to do it,” Charles Peabody, an analyst at Portales Partners said. “The government is saying, ‘We want you to step up to support households, small businesses, and corporations.‘‘ The question here is, whether it is appropriate to divert the capital to a zombie company in the energy patch or in the airline industry?”
Banks have been continuously supportive of the retail customers as they announce that some of the fees and penalties are being waived off. Some banks are also allowing a delay in repayment of credit without any additional charge.
The most significant impact of the virus pandemic has been on business corporations. They are currently seeking credit and loans by the available sources to keep the business running and outlive the current crisis.
People are restricted from getting out of their houses, which has severely impacted businesses. Central Banks all over the world are in the driving seat as they have been cutting off their benchmark rates to assist the banking sector in extending liquidity to the corporations.
As the covid-19 pandemic grows, the overall stance of the banking sector during this crisis is yet to be derived, but the sector is undoubtedly on the verge of redemption
