5 MAJOR Ways COVID-19 Impacts Investment Banks

A graph detailing annual economic growth trends of transport, travel, and sectors of other industries, with only the travel industry at a loss. The others-sector category, in contrast, saw profits from throughout 2020, according to a UNCTAD (2020) report. It includes business-related services, telecommunications, computer services, insurance, financial services, manufacturing, processing, repair, construction, and personal and recreational services, as well as government goods and services.
Graph 1 — Economic Growth Trends (Annual). Source: UNCTAD (2020). * Other includes business-related services, telecommunications, computer services, insurance, and financial services. * Other also comprises of manufacturing, processing, repair, construction, and personal and recreational services, as well as government goods and services.

Lowered economic activity means less revenue for investment banks

The banking sector is also at a loss in revenue, but more so incidentally. While banking solutions do not have to run primarily via direct customer contact, the GDP drop across the globe means that the economic clock is winding down towards national austerity, poverty and debt increases, especially in the least developed countries (LDCs). As a result, banks are feeling the pressure to innovate and board new technological methods for assessing risk, gauging commissions, and providing more options for customers of varying economic backgrounds.

Consumer protection laws mean value & security considerations for banks

The findings, however, suggest an increase in financial services usage in Q1 2021, logically due to heightened dependency on technology’s aid in executing transactions remotely. With this comes a greater need for states around the globe to review and double down on their respective consumer protection laws to maintain the monetary safety of their citizens from predatory e-commerce practices, particularly in times of crises. Of the 63 states that were surveyed by UNCTAD, 61 reported to have active consumer protection laws, including the United States, with 62-percent stating that they presently tackle problems relating to e-commerce (“WCPM”). As more online banking becomes the new normal, concerns surrounding consumer protection laws are sure to increasingly resonate with consumers and governments.

How banks will manage risk amidst emergent global crises

Covid-19 has impacted three facets of the banking sector, consisting of short-term, long-term, and systemic effects, of which key considerations include the need to segregate financial offerings built to withstand interventions from crises, with more elaborate credit plans. A chapter dedicated to the pandemic’s impact on the banking sector in the 2020 book titled Pandemic Risk Management in Operations and Finance argues that, “Medium-to-small enterprises need to be supported through special credit lines, reduced interest rates on loans, deferred repayments, and establishment of long-term credit systems [. . .]” (“The Effect of COVID-19”), alluding that medium-to-small enterprises may be the ideal relationships small and middle-market investment firms must focus on nurturing.

Can technology save the day?

Investment banks’ only way out of this predicament is the integration of technological solutions. David L. Olson, supply chain management and analytics specialist, as well as author of the aforementioned book states, “Digital transformation needs to take place at a faster rate to improve intelligent risk control systems.”

References

1. “INTERNATIONAL TRADE IN SERVICES Q1 2021.” UNCTADStat, United Nations Conference of Trade and Development, 23 July 2021, unctadstat.unctad.org/EN/.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Ali Saleh

Ali Saleh

5 Followers

Learn with me! I write about anything in which I find passion. I am a writer seeking to add value to your content. Follow me on Linkedin.com/in/ali-s-873722183