The impact of the Corona Virus on Financial Institutions
The impact of the Corona Virus on the economy and the society may have far-reaching consequences for financial institutions. In light of this development, the Swedish Financial Supervisory Authority (Sw. Finansinspektionen) has reduced the countercyclical capital buffer requirement from 2.5 per cent to 0.0 per cent. At the same time, the Swedish Central Bank, has made available up to SEK 500 billion to Swedish banks, and announced that it will buy securities for an additional amount of up to SEK 300 billion. In addition, the Swedish Financial Supervisory Authority has eased the liquidity coverage ratio (LCR) requirement in order to ease the Swedish banks’ financing. The purpose of these measures is to safeguard financial stability and ensure that the Swedish banks continue to lend to households and corporations. Together, these measures constitute relatively powerful macroeconomic measures.
However, the Corona Virus has consequences for institutions under supervision of the Swedish Financial Supervisory Authority not only from a macroeconomic perspective. It is important that the institutions assess their readiness to provide their services while taking necessary measures to protect employees. Further, it is important to review continuity and contingency plans and analyze needs for updates. For example, institutions should identify processes and routines that can be affected if employees get sick or for other reasons cannot come to work, as well as following up on outsourced activities and ensure that third party suppliers have capacity to deliver according to outsourcing agreements.
In addition, institutions should review their remuneration systems and ensure that the these take into account risks related to the general business cycle, as well as the risks of the institution. Any institution considering paying variable remuneration should ensure that it is justified considering the financial situation of the institution and its business risks.
Institutions that are obliged to establish a capital adequacy and liquidity assessment process (ICLAAP) should also consider if the events of recent weeks will change the conditions on which the capital adequacy assessment is based and whether the ICLAAP should be updated. Creditors should, of course, also follow up on customers who may be having problems with repaying their loans, update credit assessments and take other adequate actions in order to reduce potential risks associated with the institution’s lending operations.
The board of directors is responsible for ensuring that the institution complies with applicable rules and regulations, which includes managing the risks that the institution may be exposed to. It is important to give management and control functions room to act within their respective mandates, but it is at the same time important, as a board member, to keep yourself updated and ask for reports from the management and control functions on how the institution identifies, manages and minimizes risks deriving from the Corona Virus and its impact on the economy.
If you have any questions on how to act in a particular situation or have any general queries regarding regulatory requirements, do not hesitate to contact us.
