The impact of the global pandemic continues to unfold globally. It had an unparalleled effect on how we live and do business, shaking the economy’s structure. Amongst every sector, the finance industry has experienced the most significant setback. The lack of economic activity decreased global demand, limiting the exchange of money. In addition, financial institutions across banking and capital markets experienced an all-time low interest rate.
Now, financial institutes across the world are trying to cope with immediate challenges to society and economies. Financial experts are helping businesses to navigate in today’s highly volatile environment. Similarly, they are assisting people with investment decisions since the stock market is back in action. After all, the goal is to mitigate the impact of COVID-19 on the financial system and continue operations smoothly.
The immediate response from the finance industry is shaping the growth of banks, asset management, and market integrity. If you don’t know much about this, let us throw some light. Here are five different ways how the financial service sector is coping after COVID-19.
1. Record-Low Interest Rates
In the past few months, the interest rates have dropped at an all-time low because of the low economic activity. Most people saw decreasing interest rates as indicators of a weak economy. Still, it was the first step to coping from a financial perspective. First, low interest rates encouraged people to spend more and save less. In turn, it increased their purchasing power and continued economic activity across the world.
Second, competent entrepreneurs took loans at low-interest rates to start their businesses, boosting investment activities. It increased employment opportunities, overcoming the issue of high unemployment post-pandemic. Hence, one could say that the financial services industry growth has proved to be super beneficial for the economy.
2. Cyber Resilience
As people became more reliant on digital forums during the pandemic, the number of cyberattacks also surged. From phishing attacks to social engineering scams – hackers made every effort to steal confidential financial data. As a result, cybersecurity started mobilizing globally to combat these threats. Not to mention, many firms have already upgraded their cyber defenses to close doors for data breaches and identity thefts.
Moreover, financial experts are integrating extra consideration for accessing the financial data. Besides using end-to-end encrypted servers, they are locking down information behind corporate firewalls for optimal security. Therefore, we would be witnessing a robust and more secure financial infrastructure in the coming years.
3. Market Integrity & Abuse
Undeniably, the global pandemic has shaken the financial markets. The most profitable and emerging petroleum sector ran into losses while crashing the entire stock market. People lost millions of dollars because of declining share prices, but fortunately, things have returned to normal. Most financial service businesses have moved to newer web-based communication platforms to communicate with investors digitally. In addition to helping them make smart investment decisions, they are closely monitoring trends to stay ahead in the market.
Besides, the finance experts are evaluating every economic indicator to mitigate the risk. For instance, if they notice the money supply increasing, they suggest businesses start filling out loan applications. After all, as the money supply increases, inflation rises, and interest rates decline, that unfolds incredible borrowing opportunities. It protects businesses from market abuse risks, helping them cope with the upcoming situations without running into losses.
4. A New Wave of Uncertainty for Banking Industry
The entire banking industry of the United States has experienced a rough time. Due to severe losses on loans and low excise duties, the federal reserves are striving to cover the losses. Many economists even believe the effects of the pandemic were worse than the global financial crisis of 2008. In short, COVID-19 has reshaped the banking industry in different dimensions, such as sources of growth, product innovation, and the role of branches.
In the coming years, the banking industry would experience an acceleration of digital technologies and branchless banking models. Many experts argue that the economy is not ready for this change, but that’s the only way to cope with the banking industry. It would help the financial institutions in reducing fixed costs, reducing the losses.
Moreover, the banking sector is likely to increase dependency on non-interest income through investments in bonds and security. In addition to reducing risk, this change will significantly increase profitability.
5. Improved Asset Management
Due to the uncertainty created by the global pandemic, asset managers have been under a lot of stress. The asset management sector has witnessed massive outflows of assets and lower valuations, declining the stream of management fees. Likewise, several funds have been facing problems in meeting the investor redemptions. Fortunately, financial experts are putting different measures into practice to cope with this. Finance experts are remunerating the key functions across the value chain to fund administration.
At the same time, financial institutes emphasize portfolio management and capital distribution to deal with loss situations. Although these practices consume time and resources, the results have been pretty positive, improving asset management.
One can’t predict when the finance sector will recover from the damage incurred by the global pandemic. After all, the consequences are drastic, which means businesses will take time to bounce back. However, one thing for sure is that the finance industry is recovering at a fast pace. The new models, government support programs, and policies are strengthening the finance infrastructure. Financial institutions are openly addressing emerging risks and changing priorities.