Covid crisis: how banking & finance can be part of the solution
April 2020 • The Purpose of Finance • by William Wright
The banking and finance industry can be part of the solution to the Covid crisis, but how the industry responds and how it behaves in the next few weeks and months will define its relationship with government and society for the next decade. This short paper summarises 10 things that the industry should and should not be doing right now.
New Financial is a social enterprise that relies on support from the industry to make the case for bigger and better capital markets. You can download the paper here:
We believe that capital markets have a vital role to play in supporting the economy through this crisis and in driving a recovery. But…it will be vital in the coming months that the industry demonstrates a clear sense of purpose and avoids the mistakes and types of behaviour that have got it into so much trouble in the past.
At its most basic level, when the history of this crisis comes to be written, public opinion will divide the financial services industry into those firms that saw the crisis as an opportunity to take advantage of it and those who instead stepped up to support their staff, their customers and wider society. The question is simple: which side do you want to be on?
This is the first in a series of papers and events from New Financial on how the banking and finance industry can respond to the Covid crisis. It is based on conversations with our member firms, examples of how many firms in the industry have already responded in the past few weeks, emerging examples of best practice, and some of our previous work.
Despite the huge operational challenges involved, we take as our starting point that firms should be focusing on their day job: helping companies raise capital, borrow money and manage risk; helping deliver long-term returns for investors; allocating capital as productively as possible; supporting liquid and resilient markets; and maintaining robust systems.
Here is a short summary of the paper:
1) A clear choice: the industry will in future be divided by public opinion into firms that took advantage of the crisis and those that supported their staff, customers, the economy and society. Which side do you want to be on?
2) Look after your staff…: the first priority for the industry is to look after its staff, keep them safe, treat them well and recognise that they are working hard in difficult circumstances.
3) …but not too much: nothing will accelerate a backlash against the industry as fast as banks and asset managers paying big bonuses when the rest of the economy is in crisis.
4) Look after your customers: firms should redouble their efforts to support and listen to their customers, putting their interests ahead of their own, and be as flexible as possible – particularly with smaller firms.
5) Give, give, give: the industry should donate or lend whatever it can spare – advice, staff, equipment, IT, time, money, real estate – to governments and charities.
6) A longer-term view: suspending measures that reward shareholders over customers such as dividends or buybacks and consciously stepping back from shorter-term or more questionable activities will send a powerful message to government and wider society.
7) Collective action: where possible the industry should work together to develop new standards and best practice and start thinking about creative ways in which firms can work together.
8) A suspension of hostilities: the industry should not confuse temporary relief in some areas of regulation with an opportunity to use the crisis to lobby for more substantial or permanent regulatory reform or changes in tax policy.
9) An eye on the future: firms will need to juggle firefighting the immediate crisis with keeping half an eye on big issues such as Brexit, industry restructuring, and preparing to support a recovery.
10) Don’t let a good crisis go to waste: on the other side of this crisis there will be huge demand for more investment in infrastructure, innovation and sustainability. How can the industry prepare and respond?
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