'European Banks Prepared for a Crisis. But Not This One.' diff viewer (1/2)

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European Banks Prepared for a Crisis. But Not This One.	European Banks Prepared for a Crisis. But Not This One.
2020-05-01 01:52:16 UTC	2020-07-01 12:42:36 UTC (2 months later)
FRANKFURT — It was supposed to be a drill. Government overseers would test whether European banks could survive a hypothetical perfect storm that included a steep economic downturn, plunging stock prices and a collapse in consumer spending.	FRANKFURT — It was supposed to be a drill. Government overseers would test whether European banks could survive a hypothetical perfect storm that included a steep economic downturn, plunging stock prices and a collapse in consumer spending.
But before bank regulators could begin their planned stress test this year, they were confronted with the real thing. The financial impact of the coronavirus — visible in shuttered factories, empty airports and desolate downtowns — makes their worst-case scenario, a 4.3 decline in European Union economic output by the end of 2022, seem mild by comparison.	But before bank regulators could begin their planned stress test this year, they were confronted with the real thing. The financial impact of the coronavirus — visible in shuttered factories, empty airports and desolate downtowns — makes their worst-case scenario, a 4.3 decline in European Union economic output by the end of 2022, seem mild by comparison.
Some economists expect the European economy to decline by more than 10 percent in the first half of this year because of the pandemic, threatening an explosion of bad loans, deteriorating assets and plummeting share prices.	Some economists expect the European economy to decline by more than 10 percent in the first half of this year because of the pandemic, threatening an explosion of bad loans, deteriorating assets and plummeting share prices.
The question that regulators and central bankers are asking themselves now is whether the measures they took in recent years to crisis-proof the banking system will be enough to prevent a credit crunch, bank failures and a financial meltdown with global ramifications.	The question that regulators and central bankers are asking themselves now is whether the measures they took in recent years to crisis-proof the banking system will be enough to prevent a credit crunch, bank failures and a financial meltdown with global ramifications.
Andrea Enria, who oversees bank regulation at the European Central Bank, said that the damage has been manageable so far. But, he said from his home office in Frankfurt, “We still have to understand how long this will last and how deep it will become.”	Andrea Enria, who oversees bank regulation at the European Central Bank, said that the damage has been manageable so far. But, he said from his home office in Frankfurt, “We still have to understand how long this will last and how deep it will become.”
Banks are under pressure anywhere on the planet that the virus has spread, which is virtually everywhere. The problem is particularly acute in Europe because many banks there never really recovered from the last financial crisis, which began in 2008 with toxic real estate debt, spread to eurozone government debt and took at least seven years to tame. Lenders like Deutsche Bank in Frankfurt are plagued by meager profitability, inefficient operations and the continuing cost of cleaning up old messes.	Banks are under pressure anywhere on the planet that the virus has spread, which is virtually everywhere. The problem is particularly acute in Europe because many banks there never really recovered from the last financial crisis, which began in 2008 with toxic real estate debt, spread to eurozone government debt and took at least seven years to tame. Lenders like Deutsche Bank in Frankfurt are plagued by meager profitability, inefficient operations and the continuing cost of cleaning up old messes.
More than the United States, the European economy depends on banks to function. European companies get more than two-thirds of their credit in the form of bank loans, while American firms get less than one third directly from banks. They raise the rest by selling corporate bonds or shares.	More than the United States, the European economy depends on banks to function. European companies get more than two-thirds of their credit in the form of bank loans, while American firms get less than one third directly from banks. They raise the rest by selling corporate bonds or shares.
There is no sign yet of bank failures, in part because the European Central Bank quickly flooded the financial system with cash.	There is no sign yet of bank failures, in part because the European Central Bank quickly flooded the financial system with cash.
“There may be some smaller banks that have to be bailed out, but I don’t think any of the big ones,” said Richard Portes, professor of economics at London Business School.	“There may be some smaller banks that have to be bailed out, but I don’t think any of the big ones,” said Richard Portes, professor of economics at London Business School.
But Mr. Portes, who is also chairman of a committee that advises the European Central Bank and European regulators on financial risk, cautioned that things are happening so fast it’s impossible to say what the future may bring.	But Mr. Portes, who is also chairman of a committee that advises the European Central Bank and European regulators on financial risk, cautioned that things are happening so fast it’s impossible to say what the future may bring.
“In a worst-case scenario, it could trigger another financial crisis,” Marcel Fratzscher, president of the German Institute for Economic Research in Berlin, told reporters on Thursday. “The banking system in Europe and in Germany is not as robust and resilient as one would wish.”	“In a worst-case scenario, it could trigger another financial crisis,” Marcel Fratzscher, president of the German Institute for Economic Research in Berlin, told reporters on Thursday. “The banking system in Europe and in Germany is not as robust and resilient as one would wish.”
When it’s all over, European banks could be even more diminished on the global stage than they already are. After the 2008 financial crisis, American giants like JPMorgan Chase and Goldman Sachs bounced back more quickly than their European rivals and pushed them to the sidelines. Deutsche Bank is the last eurozone lender among the top 10 investment banks globally, based on revenue. (Outside the European Union, Barclays in Britain and Credit Suisse in Switzerland also belong to the top 10.)	When it’s all over, European banks could be even more diminished on the global stage than they already are. After the 2008 financial crisis, American giants like JPMorgan Chase and Goldman Sachs bounced back more quickly than their European rivals and pushed them to the sidelines. Deutsche Bank is the last eurozone lender among the top 10 investment banks globally, based on revenue. (Outside the European Union, Barclays in Britain and Credit Suisse in Switzerland also belong to the top 10.)
As European citizens retreat indoors, and restaurants, hair salons and airport lobbies stand empty, the sudden halt of economic activity will expose banks’ hidden weaknesses.	As European citizens retreat indoors, and restaurants, hair salons and airport lobbies stand empty, the sudden halt of economic activity will expose banks’ hidden weaknesses.
[Analysis: ‘Life has to go on’: How Sweden has faced the virus without a lockdown.]	[Analysis: ‘Life has to go on’: How Sweden has faced the virus without a lockdown.]
Regulators are worried, for example, about how much banks are vulnerable to debt rated just above junk. If, as expected, the crisis leads to widespread downgrades of this debt by rating agencies, investment funds run by banks would be forced to dump the assets at fire sale prices because they are not allowed to own junk bonds.	Regulators are worried, for example, about how much banks are vulnerable to debt rated just above junk. If, as expected, the crisis leads to widespread downgrades of this debt by rating agencies, investment funds run by banks would be forced to dump the assets at fire sale prices because they are not allowed to own junk bonds.
Banks are also struggling to serve big corporate customers like airlines or carmakers that are suddenly drawing down existing lines of credit to compensate for plunging sales. Lenders are required to devote a certain amount of capital to every loan they make. The sudden demand for credit eats away at their reserves.	Banks are also struggling to serve big corporate customers like airlines or carmakers that are suddenly drawing down existing lines of credit to compensate for plunging sales. Lenders are required to devote a certain amount of capital to every loan they make. The sudden demand for credit eats away at their reserves.
“Losses from big corporate borrowers are the big concern at the moment,” said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels.	“Losses from big corporate borrowers are the big concern at the moment,” said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels.
Banks that have lent heavily to the aviation industry, like Natixis in France, or to the oil and gas industry, like ING in the Netherlands, could be particularly exposed, according to analysts at Berenberg Bank. A spokesman for ING said that only about 4 billion euros, or $4.3 billion, of the 38 billion euros the bank has lent to oil and gas companies is at risk because of recent declines in energy prices. Natixis declined to comment.	Banks that have lent heavily to the aviation industry, like Natixis in France, or to the oil and gas industry, like ING in the Netherlands, could be particularly exposed, according to analysts at Berenberg Bank. A spokesman for ING said that only about 4 billion euros, or $4.3 billion, of the 38 billion euros the bank has lent to oil and gas companies is at risk because of recent declines in energy prices. Natixis declined to comment.
The crisis has been especially harsh for Italian banks. Italy has the highest death toll from the virus in Europe, and its economy was already on the verge of recession.	The crisis has been especially harsh for Italian banks. Italy has the highest death toll from the virus in Europe, and its economy was already on the verge of recession.
Germany and other northern European countries have balked at proposals to share the financial burden of the crisis. That could fuel political resentment in Italy if any of its banks need government bailouts. The country’s debt is already dangerously high.	Germany and other northern European countries have balked at proposals to share the financial burden of the crisis. That could fuel political resentment in Italy if any of its banks need government bailouts. The country’s debt is already dangerously high.
“If you want to have this crisis followed by populist governments, right-wing governments,” Mr. Portes said, “that’s one way of getting it.”	“If you want to have this crisis followed by populist governments, right-wing governments,” Mr. Portes said, “that’s one way of getting it.”
German banks are also weak, even though the country’s economy is much healthier.	German banks are also weak, even though the country’s economy is much healthier.
The country has more banks than it needs, and many are barely profitable. In late March, the ratings agency Fitch revised its assessments of numerous German lenders downward, including the two biggest, Deutsche Bank and Commerzbank.	The country has more banks than it needs, and many are barely profitable. In late March, the ratings agency Fitch revised its assessments of numerous German lenders downward, including the two biggest, Deutsche Bank and Commerzbank.
Banks also face a threat that no one thought of before. Call it the work-from-home risk. With so many traders, loan officers and technology specialists working remotely, there is greater danger of data breaches or cyberattacks.	Banks also face a threat that no one thought of before. Call it the work-from-home risk. With so many traders, loan officers and technology specialists working remotely, there is greater danger of data breaches or cyberattacks.
There are some grounds for optimism. Major policymakers like Christine Lagarde, the president of the European Central Bank, are veterans of the debt crisis that began in 2010 and nearly destroyed the eurozone. Philip Lane, the central bank’s chief economist, was previously governor of the Central Bank of Ireland, and witnessed firsthand the meltdown of Irish banks that followed the collapse of the investment bank Lehman Brothers in 2008.	There are some grounds for optimism. Major policymakers like Christine Lagarde, the president of the European Central Bank, are veterans of the debt crisis that began in 2010 and nearly destroyed the eurozone. Philip Lane, the central bank’s chief economist, was previously governor of the Central Bank of Ireland, and witnessed firsthand the meltdown of Irish banks that followed the collapse of the investment bank Lehman Brothers in 2008.
	Updated June 24, 2020
	Scientists around the country have tried to identify everyday materials that do a good job of filtering microscopic particles. In recent tests, HEPA furnace filters scored high, as did vacuum cleaner bags, fabric similar to flannel pajamas and those of 600-count pillowcases. Other materials tested included layered coffee filters and scarves and bandannas. These scored lower, but still captured a small percentage of particles.
	A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico.
	The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.
	The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.
	So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
	Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
	A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
	The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.
	Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
	If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
	If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
With those bitter experiences in mind, European leaders moved quickly to head off a financial crisis that would multiply the economic damage caused by shutdowns and quarantines.	With those bitter experiences in mind, European leaders moved quickly to head off a financial crisis that would multiply the economic damage caused by shutdowns and quarantines.