The Impact of COVID-19 on the Banking Sector

 The Impact of COVID-19 on the Banking Sector

The banking sector has often been viewed as a stable mainstay in the economy. Despite their dubious practices in the early 2000s, which inevitably lead to the 2008 crash in the United states, many still believe that a negative downturn in the banking sector is unlikely. While COVID-19 is an ongoing threat to all businesses, banks included, it is difficult to ascertain what the impact of the pandemic will be in these precarious times.

COVID-19 has brought with it many changes, both to the operations of businesses and their behavior, much of which will remain and have lasting impacts. Not only has the operation of banks changed and adapted to social distancing measures, but their practices and risk aversion has also been influenced by business trends amidst the pandemic.

Banking Operations

The first and most obvious change to the banking sector has been their business operations. Like many other organizations, banks were forced to adhere to social distancing and stay at home measures. This meant that many of their non-essential operations and employees had to adapt to a remote work environment. As bankers began using remote work technologies, many banks invested in their communication technologies and IT support. This infrastructure is one of the primary barriers to adopting remote work routines, so having crossed this threshold it is expected that these organizations may depend more heavily on remote work in the future.

Other technological adoptions can be seen on the customer end, as social distancing prevented many from accessing their banks physically. Customers that were previously resistant to remote banking technologies have been made to engage with them during the pandemic. It is forecasted that many will retain the usage of these mediums after the pandemic subsides, further advancing the technological side of banking as a whole.

Banking Risks

The risks banks are willing to take on in products like loans is essential to the wellbeing of the economy. It is well known that the high risk mortgages undertaken by banks in the early 2000s ultimately lead to the crash of 2008. A similar issue has arisen during the pandemic. Since the early 2010s, many banks have switched from high risk home loans to high risk business loans. These are loans given to unstable businesses in difficult financial circumstances.

As you may have already garnered, this may pose a threat to the economy as many businesses struggle to make it out of the pandemic. Some industries like travel, hospitality, and food service have been the hardest hit. Some businesses have even been forced to close down permanently. These unfortunate circumstances may exacerbate an existing issue in the banking sector. As banks also suffer during the pandemic, it is likely that they may engage more readily with other risky endeavors.

Banking in the Future

The two sides of banking, their operations and practices, will undoubtedly be changed from the effects of the COVID-19 pandemic. Some of these changes may lead to greater success and growth in the sector, but others may indicate another major downturn. Only time will tell how the banking sector responds to these issues and modifies their behavior appropriately.

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