Valentin Unverricht

Delivery Consultant

My last article around the role of the financial services sector in the coronavirus crisis identified a huge opportunity to become the “good guys”.

Banks could have grasped this opportunity by effectively rescuing their business clients through eased access to liquidity via the various government-backed business interruption loan schemes. So far, the sector at large spectacularly failed to take advantage of this, as business news are filled with items bemoaning difficult application processes and stories of large and small companies threatening to go under.

Facing such criticism, the banks themselves often respond with the fact that they effectively command finite resources facing an exponentially growing administrative demand because of these schemes and ask for patience.

All the same, a decade after the global financial crisis, the banking industry has again arrived in a position it should find familiar: that of the nation’s favourite punching bag. 

Most of the criticism is, pardon the pun, right on the money - the sector certainly constitutes something of a roadblock when it comes to the flow of liquidity into the markets. Given my view a month ago, I find this disappointing on first thought.

However, on second thought, things are not quite as black-and-white as they appear. This time around, the banks do not fit into the role of the “bad guys” as comfortably as they did in the Financial Crisis of the late 2000s.

In the following, I will explain why through two different contexts. One looks at the banks’ precise role within the business interruption loan schemes. The other looks at the business sector within society overall, taking a “micro” and a “macro” view.


Protecting the taxpayers’ cash

First of all, it is important to see the government’s business interruption loan schemes for what they are: guarantees, not subsidies. Therefore, the government doesn’t actively inject liquidity into the markets through the banks – it merely guarantees cash that’s already there.

To be sure, government does also have access to extra liquidity, which is secured through increased state borrowing and is directly administered to the public via routes such as Universal Credit and the furlough schemes (in other words, “B2C”, rather than “B2B” measures). As far as business interruption assistance is concerned, this extra borrowing would also need to be used to cover guarantees on those loans that failed.

Therefore, if banks are currently accused of making processes to access these loans difficult, one may derive the point that they are actually protecting taxpayers’ money. One could then go one step further and assert that a sector bailed out by the government on a significant scale in the late 2000s is now redeeming itself by protecting the hand that once fed it.

A further, slightly emotive deduction would be that the more stringent these loans’ application processes are, the less government will have to cough up for guarantees and the more financial resources government would consequently retain for the truly vital buttresses of society – namely the NHS, the care system and securing the incomes of the most vulnerable.

But what about those businesses at the other end of the application processes? We must not forget that this is about people’s livelihoods, which make up a significant sector of the UK economy.

I see two angles to take a view here.

The micro view

On a “micro” basis, we have a set of risk-taking entrepreneurs and the staff they are responsible for – each complete with families and follow-on business environments of suppliers and clients. The overwhelming majority of these may find themselves in financial trouble purely because of the COVID-19 crisis and through no fault of their own. Surely, it should be a duty of the banking sector to contribute to the national effort of protecting as much of the economy as possible against the effects of the lockdown. Surely, the banking sector too needs to make sure that the business landscape retains its “pre-corona” shape until we arrive in a “post-corona” period of the (hopefully near) future.

The consequence of the failure to do so would thus be high levels of unemployment and a run on government money through the welfare system. If you take the micro-view, the argument that banks are merely protecting the taxpayer is therefore moot.


"To illustrate, let me bring my dad into play, with whom I had a conversation about a beautiful thing recently: German beer."

The macro view

However, one could also take the “macro”-view of businesses as value producers in an environment purely driven by demand and supply. If a business producing a certain product or service – a “value”, in other words – falls victim to the COVID-19 crisis and ceases trading, it does not necessarily mean that this value is lost for posterity. If there is enough demand, there is thus enough incentive for another business to offer this value in the future.

To illustrate, let me bring my dad into play, with whom I had a conversation about a beautiful thing recently: German beer.

In line with everywhere else, the brewing industry in Bavaria (my dad’s home) is struggling right now. Many small-scale, often family-owned producers are likely to go under in the coming months because their main revenue driver, the hospitality industry, has effectively been cut off for a sustained period of time. However, COVID-19 will not stop the Bavarians’ thirst for beer, so the consumer demand will certainly still be there after the crisis lifts. Moreover, the physical infrastructure of brewing beer will most likely stay in some sort of circulation, maybe even at depressed resale prices – thereby lowering barriers to entry for new or renewed entrepreneurs.

Therefore, the consequence would thus be that Bavarian beer will still be available to buy. It may be offered under largely different brand names and at worst there may be fewer choices for the consumer than we see currently. However, the essential value, beer, will not disappear.

I appreciate that this macro-view is a form of robotic demand-and-supply led economic thinking. It certainly does not help those of us who are worrying about their livelihoods. However, it does have a precedent in history. Take either World War or any economic, political or disaster-driven crisis of the last two centuries and you will see that high-demand sectors always survived.

To be sure, I am not looking to support either the micro- and business-focused or the macro- and value-focused view. Nor is this a defence of the banking sector at large – I am fully aware there will be positive as well as negative examples of behaviour in the industry. I also stand by the point I made in my previous blog that banks have had and hitherto missed a huge reputational opportunity provided by this crisis.

However, I do intend to point out that the banks’ role in terms of business retention is more complex than it appears and can be interpreted in several different ways. The binary question of whether banks are the “good guys” or the “bad guys” just doesn’t cut it anymore.

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