Banks are at the frontline of the relief measures announced by the Federal Reserve and the Trump administration to support the economy in the downturn triggered by the coronavirus pandemic. The Fed has noted that the U.S. banking system is stronger than it was during the 2008 recession with supporting oversight by regulators. However, in its desire to make it easier for banks to expand lending during the slowdown, the Fed has relaxed its regulatory requirements on several fronts.
The reality is banks are vulnerable and could get seriously hurt if sections of borrowers default on their loans, warns David Zaring, Wharton professor of legal studies and business ethics.
“[Banks are] clearly the vehicle that the Fed and Congress have chosen to use to try to get as much cash as possible for the rest of the economy,” says Zaring, who is also author of the book The Globalized Governance of Finance. “[Banks] look reasonably ready for a shock, but I don’t know how long any business could survive an economic shock of this magnitude. I don’t think banks are so different from other businesses in that regard.”
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