Quick Money—Run on the Banks

Covid-19 set off a domino effect as one national economy after the other began entering a crisis mode. Almost every day we see public policy, business, and financial experts present new facts and figures about the economy. They frequently draw comparisons to the global recession sparked by the collapse of the Lehman Brothers investment bank in 2008. At that time it was the international banking sector that sent shock waves rippling through the real economy. Now it is the other way around. With businesses closed, container ports deserted, trade fairs cancelled, air traffic at almost a standstill, and nearly a billion people under lockdown or other contact restrictions, exports have plummeted and global consumption stands in shock. Financial markets are experiencing enormous turbulence and the price of oil is in free fall. Yet another difference defies comparison with 2008: the global economy will fall twice as far as it did then. The International Monetary Fund (IMF) anticipates the most severe global recession in almost a century.

Run on the banks
When many companies began feeling the effects of the pandemic in March 2020 in the form of falling demand and shortages in supply, the banks saw a run on their services. “The need for liquidity was relatively stable over recent years, but financial institutions are now having to meet a steep and sudden rise in demand,” says Dr. Stephen Hellhammer, a partner at Porsche Consulting. The banks are scrambling to resuscitate the economy with the help of loans—no easy task given the dynamics of the pandemic. “On the one hand, we obviously have to minimize risk for ourselves, yet at the same time we want to give our clients the greatest possible support,” says Stephan Ortolf, who heads the corporate customer division of DZ Bank in Frankfurt am Main. One thing is clear: not every company will survive this crisis. “A crucial factor is whether it was already having trouble before the pandemic, and also whether its business model will be viable in the future,” explains Ortolf.