The year 2020 ends with the discovery of a new mutation of the Covid, even more contagious than the previous one, and already, some European countries are reconfining.
Everything suggests that 2021 will not be the return to ” the normal “ long awaited by some, but the continuation of a situation “Abnormal” or rather a new normal. Especially since on the economic front, the news is hardly more encouraging and the risks of banking and financial tensions unfortunately very real.
While the Governor of the Banque de France is fighting so that French banks can resume paying dividends, the European Banking Authority is calling on the entire sector to prepare for a potential crisis due to the explosion of default risks. Same speech on the side of the European Central Bank which eventually assesses the amount of bad debts at 1,400 billion, that is to say much more than during the 2008 crisis and that of the 2011 sovereign debt crisis .Daniel Cohen: “The coronavirus crisis is approaching the 2008 crisis”
This situation was unfortunately foreseeable. We warned of the serious risk with Jézabel Couppey-Soubeyran, reminding us at the very beginning of the health crisis that everything had to be done to save Europeans from a banking and financial crisis and show courage by proposing new policies.
Inordinate use of loans
This time around, the banking crisis will not be entirely attributable to the behavior of the banks, but will come largely from the real economy. In fact, during the health crisis, governments chose to compensate for the absence of private sector activity due to lockdowns with easier access to loans. This is where the error was, it would have been necessary to go through the massive granting of subsidies or by helicopter money as we had suggested in these same columns.
Indeed, in a situation where many businesses, small shops, places of culture, bars and restaurants have been deprived of activity for part of the year, how can we expect them to repay the loans granted? ? The absence of economic activity is never reimbursed.
“If the restaurants remain closed until the end of the year, it will be dramatic”
Also, the amount of non-performing loans – these debts which will probably never be repaid – risks exploding if nothing is done, especially since in France the moratoriums on the repayment of credits or loans guaranteed by the The state will soon end and many households, affected by the crisis, will no longer be able to repay their home or consumer loans.
For the banking sector, the risk this time around is no longer that of the absence of liquidity – as in 2008 – but of solvency.
Against a background of deregulation
To this gloomy picture, we must add that if the banks are today relatively more solid than in 2008 thanks to the capital requirements – the resources that they hold in their own right and which absorb losses in the event of hard times – we We have noted since the onset of the crisis a multiplication of emergency plans (the “Quick Fix”).
These plans poorly mask the attempts to deregulate national banks hand in hand with their protective states, ready to accept anything lest their banking strongholds collapse. An uninhibited attitude, encouraged by an element of language much too rehashed in recent months: “If the banks were the cause of the 2008 crisis, they are now the solution. “
However, nothing can assure us that the current protections will be sufficient to cope with the emerging economic shock and the multiplication of defaults on the part of their creditors. Let us remember that it would suffice for banks’ losses to be greater than 5.6% (current level of the share of equity in their balance sheet) of all their assets for them to find themselves in serious difficulties.
The solutions are social, regulatory and institutional
Faced with this risk, which would further deteriorate the economic and social situation of Europeans, there are three types of solutions. They consist of avoiding the explosion of delinquencies, of cleaning up the situation of the banking sector and of preparing for the future.
First of all, the best way to avoid the rise in defaults is to avoid the social crisis, the loss of income. In other words: job creation, particularly in the public sector, an employment guarantee mechanism, an increase in social minima, as well as investment in ecological transition, i.e. more broadly support for global demand will be our best allies. At the same time, it will probably be necessary to transform guaranteed loans into lasting subsidies, and above all no longer resort to loans for the next stimulus plans, because there will be some.
As for the banks, the urgency is to stop any movement of deregulation and payment of bank dividends. But conversely, require banks to use the expected dividends to recapitalize. We will also have to replenish the European bank resolution fund that we will need sooner or later. Finally, in order to avoid contamination of the crisis, the creation of a “Cleaning Bank” European Union will be essential. It will have to make it possible to extract bad debts from the market, while requiring that the banks engage in counterpart in financing the real economy and stop financing polluting activities. We will have to be intractable on these counterparts.
Finally, as Winston Churchill said, you should never spoil a crisis. After so much suffering, let’s at least try to find meaning in it: that of reorienting our economic model towards social-ecological transition and bringing banking and finance into line. In this area, the European Central Bank has a key role to play. It has the means to green its monetary policy by putting an end to market neutrality, by opting for a qualitative management of climate risk, etc.), to protect us from the next systemic crises linked to climate change, and to put finance at the service of ecological transition.
These are just a few suggestions. There is no lack of solutions in the face of crises. In addition, putting in place measures to prevent this crisis could help lay the foundations for a new development model… because even the worst is never certain.