The COVID-19 pandemic and shutdown of the economy have had significant effects on financial markets and banks. Banks are expected to play a key role in channeling credit (including from the government) to businesses and households, both to ameliorate the pain of the recession and to help quicken the return to a more normal economy as the pandemic recedes. To support banks’ abilities to do this, regulators have urged them to use their capital and liquidity buffers and have eased some capital requirements. Are banks meeting expectations? Are banks strong enough to keep lending through the economic disruption, or should they cut dividends or share repurchases, for instance? What have we learned from the behavior of banks in lending and securities markets about the costs and benefits of Dodd-Frank and other reforms put in place after the Great Recession of 2007-2009? What vulnerabilities have been exposed? Are there longer-term risks to financial stability if some regulatory forbearance is extended?
On June 4, the Hutchins Center at Brookings addressed these questions in a webinar. Former Federal Reserve Governor Jeremy Stein—with co-authors Samuel Hanson, Adi Sunderam, and Michael Blank, all currently at Harvard University—presented a background paper. Then joining Stein in conversation was former Fed governor and banker Betsy Duke, Andrew Metrick of Yale, and Don Kohn and Nellie Liang of Brookings. Effects on financial markets were addressed at a Hutchins Center event on May 27.
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