Bank Misconduct and the COVID-19 Pandemic

The COVID-19 pandemic, and the ensuing economic crisis in many countries, represent the first serious test of the business banking rules introduced after the global financial crisis. While the banking sector seems more resilient and better capitalised compared to 2007, banks will face increasingly challenging circumstances as the health crisis leads to an economic crisis.

At present, banks are seen as useful to support the real sector’s financing needs. However, concerns are mounting as regulators in many countries have relaxed or suspended regulations and introduce some special incentive schemes to help the economy. As regulatory forbearance might become more widespread, bank conduct remains a matter for concern.

Conduct risk and its management is increasingly important for financial firms striving to foster a more ethical culture to regain customers’ trust.

While banks would argue that misconduct episodes are mainly due to legacy issues, there are emerging vulnerabilities which might lead to problems going forward. Cooperation and close coordination among regulatory agencies in different countries, global standard-setting bodies, and EU bodies will be paramount to ensure the financial sector remains resilient.

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