What role do banks play in society?

Money houses as saviors? : What role banks play in the corona crisis

It is stand builders, restaurants and hotels that are already feeling the effects of the corona crisis. Retailers, craftsmen and taxi operators could soon follow suit. The virus outbreak is likely to affect German medium-sized companies in the coming weeks and months. And their reserves are quickly used up if customers and orders are missing. In 2008, the banks were the ones who triggered the crisis with their risky businesses, today it is they who have control over which companies will survive the corona shock. "Banks now have to support healthy companies with loans that have lost orders or their customers can no longer pay," says Hans-Peter Burghof, banking professor at the University of Hohenheim.

But can the financial institutions do that? Or do you need help yourself? In order to find answers to these questions, representatives of the major banks as well as the savings banks and Volksbanks will meet this Friday in the Federal Ministry of Finance. While politicians want to focus on bridging loans for companies, the industry is using the attention to renew old demands: the banks have been complaining for years about the strict regulation of their industry since the financial crisis.

There is enough liquidity

Banking professor Burghof believes that the institutes are currently at least not lacking the necessary liquidity: "The German banks have enough leeway to expand their loans," he is convinced. “After all, despite negative interest rates, they are still parking large sums of money at the European Central Bank (ECB).” Should politicians nevertheless rely on liquidity support for the banks, one must look carefully at which institutions received them. “An investment bank doesn't need any support now, even if it employs more lobbyists,” says Burghof. Liquidity assistance would be an option for regional institutes where small business owners have their accounts.

Background about the coronavirus:

The money that the banks will now probably have to provide is one thing - the risk they are taking on is the other. After all, there is no guarantee when Corona will be over and business operations will start again. But that is a problem for the institutes, says Volker Brühl from the Center for Financial Studies at Frankfurt's Goethe University. “Under no circumstances should the banks take additional risks into their books under political pressure,” he writes on Twitter. “This would only be conceivable with a deficiency guarantee from the federal government.” So what is needed are guarantee banks, the development banks of the federal states and the KfW, which, for example, secure loans from traditional commercial banks. Federal Economics Minister Peter Altmaier (CDU) has already announced that it will increase the funds for this in case of doubt.

Eric Schweitzer, President of the German Chamber of Commerce and Industry (DIHK), also advocates this. He warns that banks could terminate the loans to the affected companies instead of providing bridge financing. "We have to deal with these cases with temporary state guarantees and an expansion of the credit lines at the house banks and development institutions." He therefore calls for "unconventional immediate measures".

Bureaucracy prevents credit

In the opinion of banking professor Burghof, these also include making lending less bureaucratic for banks. Because even for small regional banks in rural areas, strict requirements have been in place since the financial crisis, since stacks of documents have to be filled out for a simple loan. That is not helpful in a crisis. "Bureaucratisation makes the banks' work slow and lending complicated," says Burghof. The regulators - the ECB and the financial supervisory authority Bafin - have to act now so that the institutes can help companies quickly.

For the large banks, which, like Deutsche Bank or Commerzbank, come under the supervision of the European supervisory authority, there has already been relief in the capital buffer since Thursday. This refers to reserves that banks have to put aside when they grant loans. The ECB banking supervisory authority now wants to allow the institutions to temporarily hold a small capital buffer as required. In this way, it seeks to prevent banks from restricting their lending solely on the basis of capital requirements. In the end, this should also help the entrepreneurs.

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