European Banks Prepared for a Crisis. But Not This One.

Pubblicato il 8 Aprile, 2020 alle 9:15 da in European Banking News

The financial impact of the coronavirus surpasses the old worst-case scenarios, threatening a credit crunch or even a new financial crisis.

FRANKFURT — It was supposed to be a drill. Government overseers would test whether European banks could survive a hypothetical perfect storm that included a steep economic downturn, plunging stock prices and a collapse in consumer spending.

But before bank regulators could begin their planned stress test this year, they were confronted with the real thing. The financial impact of the coronavirus — visible in shuttered factories, empty airports and desolate downtowns — makes their worst-case scenario, a 4.3 decline in European Union economic output by the end of 2022, seem mild by comparison.

Some economists expect the European economy to decline by more than 10 percent in the first half of this year because of the pandemic, threatening an explosion of bad loans, deteriorating assets and plummeting share prices.

The question that regulators and central bankers are asking themselves now is whether the measures they took in recent years to crisis-proof the banking system will be enough to prevent a credit crunch, bank failures and a financial meltdown with global ramifications.