The pressure the COVID-19 crisis has recently put on economies has been a lesson in humility, teaching us how to manage uncertainty and highlighting our weaknesses.
Looking back as Switzerland gradually starts emerging from lockdown, a first assessment can be made of its consequences on banks and for once the sector’s resilience should be recognised.
One fact is already clear: the forced “rest” the country has had to take could cost the Swiss economy between 7% and 10% this year, according to the State Secretariat for Economic Affairs. But compared to most manufacturing and services sectors, which have been heavily affected, our industry has, at least so far, remained in a privileged position.
A twofold crisis for banks
Yet this pillar of the Swiss economy, representing 5% of GDP (CHF 33.2 billion in 2019) has had its share of storms to weather. In fact, the crisis banks have had to tackle this time has been twofold. First came the health crisis, threatening workforces and processes. Faced with the emergency of the pandemic, they rolled out their “business continuity plans” for the first time, assigning almost all their staff to working from home in order to avoid any risk of disruption. While they were busy protecting their employees, banks were suddenly hit by the second crisis – the brutal stock market slump in which most markets recorded the worst trading sessions in their history with volatility surging and the oil price collapsing. During these rough weeks banks had to decipher market movements, and inform and advise clients while ensuring their operations continued uninterrupted.
Coronaloans
Their ability to rise to this double-challenge, and to cushion the effects of this unprecedented crisis, has benefited the entire economy. Indeed, it is because they stayed on their feet that many banks were able in March to honour their responsibility alongside the Federal Council of setting up a financial support mechanism for SMEs struggling for cash. In fact, this ‘corona-credit’ scheme was implemented in record time thanks to the strong spirit of cooperation banks have maintained with Bern. They offered up their infrastructure, their knowledge of the economic fabric, their expertise of lending processes, and even some of their teams. Similar programmes were launched in other countries, but many were either inadequate or outright failures, like in the United States where the first SME relief fund was intercepted by large companies.
Banks’ stabilising influence is also measured by their resilience as employers. Accounting for over 5% of all jobs in Switzerland and up to 12% along with insurance companies in Geneva, banking is the sector that has relied the least on furlough schemes and has not announced any lay-offs so far.
Donations for research
Lastly, a number of banks have taken on some of the burden outside their own walls too. Behind the scenes they have been making millions of francs’ worth of donations towards coronavirus research, supporting medical staff, and helping the people suffering the most from the health crisis.
Whether a trial by ordeal or a life-sized test for the entire economic and financial apparatus, the COVID-19 crisis is demonstrating that banks have learned from some of the lessons of the past. While, unlike in 2008, the origin of this crisis is not in finance, we cannot ignore the risk that the extreme weakness of the economy after weeks of paralysis will spread to the financial sector. Nevertheless, the resilience shown by banks is testament to the positive changes they have put in place.
Staying humble
Since the Basel III accords, banks have significantly improved the quality of their capital and the liquidity of their balance sheets. Furthermore, the entire sector undergoes regular stress tests. It was also the 2008 crisis that prompted them to review their business continuity plans, the benefits of which we are reaping now. Another effect of the financial crisis was the consolidation movement which saw the disappearance of the more fragile institutions, leaving the more resilient banks able to invest massively in digital technology and comply with the new regulations.
"In short, Swiss banks have become stronger and more agile – two qualities that have proved decisive in recent weeks."
Unfortunately, none of us can predict how long the sector will be able to absorb the shock waves of a depression that threatens to be the worst since 1929. Because resilience itself has its limits and has to show humility like the rest of us.
Bernard Schuster
Group Head of Communications
