How Should U.S. Bank Regulators Respond to the COVID-19 Crisis?

By: Michael Blank, Samuel G. Hanson, Jeremy C. Stein and Adi Sunderam

Format:Print
| Language:English

Abstract

Drawing on lessons from the 2007–2009 Global Financial Crisis (GFC) and a simple conceptual framework, we examine the response of U.S. bank regulators to the COVID-19 pandemic. We argue that the current regulatory strategy of “watchful waiting”—the same strategy that was used during the early stages of the GFC—poses unnecessary risks to the financial system and broader U.S. economy. Instead, promoting an early recapitalization of the banking system, by stopping dividends and by encouraging new equity issues, would be a more prudent way to manage the vulnerabilities the pandemic has created. We close by suggesting additional measures that we believe regulators should take in both the short and long run.

Keywords

Covid-19; Bank Regulation; Recapitalization; Health Pandemics; Banks and Banking; Governing Rules, Regulations, and Reforms; Strategy; Risk Management; United States

Citation

Blank, Michael, Samuel G. Hanson, Jeremy C. Stein, and Adi Sunderam. "How Should U.S. Bank Regulators Respond to the COVID-19 Crisis?" Hutchins Center Working Paper, No. 63, June 2020.