EU banks’ vulnerabilities to COVID-19

COVID-19 will hit financial institutions with a substantial time lag, but the storm will be fierce. The tremendous pandemic fallout will further deteriorate EU banks’ profitability which remains their major vulnerability. In this Policy Brief, Sebastian Mack suggests that monetary, fiscal and prudential emergency measures are keeping the real economy afloat but do not enhance the resilience of the EU banking sector. Losses will erode banks’ capital base endangering their viability. To withstand the crisis, EU policymakers should require banks to suspend any sort of discretionary distributions and maintain capital instead.

Image: CC Leonhard Niederwimmer, Source: Pixabay