The coronavirus (COVID-19) outbreak is causing widespread concern and economic hardship for consumers, businesses and communities across the globe. The situation is changing quickly with widespread impacts. some general guidance on COVID-19: What US business leaders should know with respect to crisis management and response, workforce, operations and supply chain, finance and liquidity, tax and trade, and strategy and brand.

ISSUES THAT BANK FACE (RATE AND VOLUME)

Issues the banking and capital markets industry might face:

1.Credit quality may deteriorate quickly in some areas, especially in sectors or geographies that are hit the hardest. his may overwhelm existing models for Current Expected Credit Losses (CECL), requiring more resources to assess the impact of changing market conditions. This could have an effect on stress-testing in general.

2.Markets may be highly volatile for some time, and that will make price discovery more challenging. Rapid liquidity shifts and unexpected demand drops are already causing some challenges for market participants that need to “see” pricing. Similarly, volatility and associated dislocations can limit the effectiveness of hedging relationships.

3.Financial firms will also be required to make disclosure(s) about the effect of COVID-19 on their business within financial statements or other SEC filings, based on relevant GAAP and SEC disclosure standards. Affected disclosures could include risk factors, impairment, debt, liquidity, and aspects of Management Discussion and Analysis (MD&A).

SOLUTIONS

• Begin a detailed review of your portfolio as soon as possible to assess how this situation will affect credit quality. Make sure that your key assumptions (your own or those developed by vendors) are still valid, and that the qualitative reserves you’ve identified still make sense. While the situation is evolving quickly, you may want to adjust economic scenarios or the associated weighting of such scenarios within your modelling.
• You may want to strengthen your review of triggering events to be sure that you’re performing asset impairment tests promptly. More broadly, as asset valuations across the financial system shift rapidly in unexpected ways, you may need to rethink how you address risk in your models, and reevaluate the scope of work performed by valuation experts.
• Finally, it’s not too soon to start thinking about early warning disclosures for financial reporting: assets at risk of impairment, disclosures about risk factors and more. Transparency is crucial for maintaining trust in a crisis, and you may decide it makes sense to change the frequency and content of investor presentations and updates.