The Brexit referendum delivered a punch to the UK’s pound, but the currency has slowly picked itself up and gained some strength despite the pandemic, once again closing in on the US$1.40 mark in February. How well it fares over the next few months will depend on several factors—including the UK’s COVID-19 response but also the raft of unique issues that the nation will face as it evolves post-Brexit.
The pandemic has accelerated existing digitalisation trends in banking, giving banks more justification for not only closing branches but also consolidating. Many European banks struggled over the past decade to meet capital requirements introduced after the financial crisis. Consolidation through mergers and acquisitions is well underway, with the blessings of governments and regulators that view it as a means to streamline the financial sector and strengthen its profitability and resilience.
Effective monetary policy undergirds price stability, and the complex synergy of many moving parts in today’s crisis-prone world presents new challenges to innovate as traditional instruments reach their limits. The European Central Bank has responded by introducing new tools to its toolbox, chief amongst them being policy rates, quantitative easing and targeted longer-term refinancing operations, which have pushed the boundaries, but the interaction between the policy instruments could be unpredictable.
As calamitous as the pandemic’s effect has been on economies worldwide, in many cases, it has only fueled concerning issues that pre-dated it. COVID-19 will eventually be consigned to our past, but its effects will linger on for decades. What are the four questions we need to ask ourselves now to shape the best plan of action toward economic healing, sustained recovery, innovation, cooperation and prosperity while avoiding potential landmines?
Financial Institutions are often deliberate targets and unwitting participants in crimes, from money laundering to market manipulation. A relatively recent addition is Green Crime, which includes transgressions against the planet’s natural resources, such as environmental and wildlife crime. Fortunately, Refinitiv’s recent survey results show that the majority of those surveyed want to end ecocide atrocities such as illegal wildlife trafficking, recognizing the risks to not only to the health of the environment but also the financial system.
COVID-19 has brought the centrality of the banking industry within the financial sector into sharper focus. Banks’ roles in shepherding their economies through the troubling times of the pandemic and beyond are indisputable; how well they fulfil their mandates will determine the success of the broader recovery in Europe and elsewhere. The road won’t be easy, and the banking sector needs to redefine and restructure itself to meet these challenges. Bank boards will have to take a more prominent role in this process.
Gains in Europe’s annual inflation rates during the first month of 2021, raising the euro area’s rate to 0.9 percent and the European Union’s to 1.2 percent—due primarily to price increases for industrial goods and services, are encouraging and bring promise for further increases. However, not all EU countries experienced the same success, with Greece at the low end (-2.4 percent) and Poland at the high end (3.6 percent).
2020 wasn’t a good year for shareholders scheduled to receive bank dividends. Regulators swiftly put a halt to dividend payments from banks to ward off a pandemic-induced crisis, requiring lenders to conserve capital and distribute it as needed to consumers and businesses. The dividend pipeline is slowly reopening as confidence grows in the banks’ stability, but it may be a while before shareholders receive their fair shares of the profits.
It has been an unusually eventful year for central banks all over the world in 2020, and given the current circumstances, the coming year is set to be no less busy. With a variety of challenges to overcome, therefore, central banks hope to achieve several important goals before the end of 2021.
Banks around the world have been crucial throughout 2020 in stabilising their respective economies. They have ensured that liquidity continues to be transmitted to the real economy, which in turn has helped to prevent a full-blown credit crisis from emerging as happened during the 2007-09 global financial crisis.