Coronavirus Economy: Major Banks On The Verge Of A Financial Crisis?
Is America in trouble? What if the entire economy collapses? Will the bank lose all of my money? Many Americans find themselves worrying about these things. Could this actually be a future reality? Read this article so that you can stay aware & not be left in a state of financial ruin because of the mistakes of others.
After months of living with the COVID-19 pandemic, American citizens are well aware of the effect it has taken on the economy: record unemployment, broken supply chains, failing small businesses. Ever since the aftermath of the Great Recession, the Federal Bank of America has put new restrictions on how America’s biggest banks can spend capital, while also protecting the financial system from risks caused by the coronavirus pandemic.
One measure called the “Stress Test” is used to check if the banks could survive. In order to pass this hypothetical financial crisis, banks must function without being forced to stop lending or needing a taxpayer bailout. The results of the traditional stress test were first published in February, just as the pandemic and its economic devastation began. The problem was evident, the Federal Bank of America instantly realized that the extreme scenario it had planned for was nothing compared to the escalating crisis of the pandemic. During the stress tests, banks were prepared for a maximum unemployment rate of 10 percent. Now, during the pandemic, the unemployment rate is around 13.3 percent at the moment while the real rate is probably three percentage points higher.
The Federal Bank of America ordered the country’s biggest banks, including JPMorgan Chase, Bank of America and Wells Fargo, to limit dividend payments to shareholders and suspend their stock buyback programs. American banks must also make new plans for maintaining enough capital to survive a downturn.
On the other hand, the United State’s biggest banks are also set to earn hundreds of millions of dollars in fees paid out by the Federal Bank of America under its Paycheck Protection Program, according to S&P Global. America’s biggest bank, JPMorgan Chase (JPM) issued the most PPP loans out of any bank, processing $28.8 billion of loans in June. This could yield the bank more than $800 million in fees. Bank of America (BAC) was the second biggest issuer at $25.2 billion. Rick Wayne, president and CEO of Northeast Bank states that this could be enormously profitable for banks.
Though the recession caused by the COVID-19 pandemic marks the first big test of the banking industry’s resilience since America’s last financial crisis, the industry claims to be much stronger. In fact, a Federal Bank of America analysis of American banks showed that the banks were in good shape now but that some could struggle in the worst-case scenarios during economic recovery.
Banks have already allowed millions of customers to skip credit card payments and mortgages during the pandemic. But with the increase in cases, their customers’ financial health could get a lot worse as massive government stimulus efforts have kept many afloat, including expanded unemployment benefits that could expire in time.