Claudia Buch: The coronavirus pandemic as an exogenous shock to the financial industry

Keynote speech by Prof Claudia Buch, Vice-President of the Deutsche Bundesbank, at the Hachenburg symposium, Frankfurt am Main, 10 September 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

1 What does the coronavirus pandemic mean for the financial sector?

The coronavirus pandemic is not completely behind us just yet, but the contours of future economic developments are already taking shape. Structural change in the real economy is likely to pick up speed – digital transformation, demographic change, and climate policies pose challenges for the real economy and the financial sector. Higher debt levels in the private and public sectors, boosted by low interest rates, are making the macroeconomic setting vulnerable.

Unlike the global financial crisis of 2007–08, the shock during the pandemic did not originate in the financial system. Even so, the shock threatened to spill over into the financial sector by way of rising credit risk, as many enterprises and sectors of the real economy saw their liquidity and solvency directly jeopardised by lockdown measures.

The immediate crisis has since been overcome. So what are the key lessons?

One important lesson is that the monetary and fiscal policy measures in response to the crisis were necessary to shield the real economy and financial sector from the pandemic fallout. In Europe, fiscal measures supported around one-third of new lending (ESRB 2021). In particular, lending to smaller enterprises and to sectors hit hard by the crisis have benefited.