Bank Risk Assessment under COVID-19 Crisis

Abstract

The global economy is showing signs of gradual recovery after experiencing stagnation during the COVID-19 epidemic. However, one major concern in the United States is the persistently high inflation rates observed in recent years. To address this issue, the United States has initiated a continuous interest rate increase plan as a measure to slow down the country's economic growth. While this strategy aims to curb inflation, it has created a series of challenges, particularly for the banking industry. The repercussions of these interest rate hikes have extended to various sectors of the economy. Notably, the technology sector has felt the pinch as higher borrowing costs have dampened the momentum of technology stocks, resulting in a decline in valuations for technology companies. Silicon Valley Bank, a financial institution heavily reliant on the technology industry, has also experienced the adverse effects of these interest rate hikes. Perhaps one of the most contentious developments resulting from these actions was Credit Suisse allowing UBS to acquire it at a price significantly below its market capitalization—approximately a quarter of its market value. This move was driven by concerns about preventing systemic risks. In sum, the far-reaching and, in some cases, severe consequences of the Federal Reserve's interest rate hike strategy underscore the critical importance of striking a balance between economic growth and inflation control.