INDIVIDUAL ASSESSMENT

SEMESTER 1, 2020

Will COVID 19 pandemic trigger another global

banking crisis?
A lesson from previous global financial crisis

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, ........... 2020
Contents
CHAPTER ONE: INTRODUCTION........................................................................................3
1.1. INTRODUCTION......................................................................................................... 3
1.2. AIMS AND OBJECTIVES OF THE RESEARCH..........................................................3
1.3. METHODOLOGY AND DATA......................................................................................4
1.4. STRUCTURAL SUMMARY OF THE DISSERTATION................................................4
CHAPTER TWO: LITERATURE REVIEW..............................................................................5
2.1 INTRODUCTION.......................................................................................................... 5
2.2 LITERATURE REVIEW................................................................................................6
2.3 CONCLUSION............................................................................................................ 19
CHAPTER THREE: METHODOLOGY AND DATA..............................................................21
3.1 INTRODUCTION........................................................................................................21
3.2 METHODOLOGY........................................................................................................22
3.4 DATA COLLECTION..................................................................................................27
3.5 CONCLUSION............................................................................................................ 28
CHAPTER FOUR ANALYSIS AND RESULTS.....................................................................29
4.1. INTRODUCTION.......................................................................................................29
4.2. DATA ANALYSIS.......................................................................................................29
4.3 THE SUMMARY OF THE RESULTS INTERPRETATION..........................................45
4.4 CONCLUSION............................................................................................................ 46
CHAPTER FIVE: CONCLUSION..........................................................................................48
5.1 INTRODUCTION........................................................................................................48
5.2 SUMMARY FINDINGS...............................................................................................48
5.3 POLICY RECOMMENDATIONS.................................................................................49
5.4 LIMITATIONS OF THIS DISSERTATION...................................................................49
5.5 SUGGESTIONS FOR FURTHER RESEARCH..........................................................50
References........................................................................................................................... 51
 

CHAPTER ONE: INTRODUCTION

1.1. INTRODUCTION
From the beginning of 2020 to the present time, the Covid - 19 catastrophe is
taking place globally and particularly seriously in many countries, causing negative
impacts on the global economic and social situation. A World Bank study had
forecasted that income per capita just was expected to fall by 3.6%, while at the
same time pushing millions into poverty and unemployment in 2020. Furthermore,
the global economic value would witness a severe deterioration of 5.2% due to the
quick and heavy shock of the COVID-19 disaster; and measures of nations and
common economic sectors closing their economies to prevent the spread of the
COVID-19 disaster (Worldbank, 2020). In June alone, the world financial markets
suffered a huge loss of up to Rs 56.22 trillion (ETBFSI, 2020). The psychology of
economic sectors is seriously affected when the revenue source plummets,
especially in service, tourism and aviation industries.
Nations that the disaster had been most seriously and burdensome
associated with international trading activities, tourism, export – import and global
financing chains may be hardest hit. Although the level of impacts would vary among
nations and regions, all developing and emerging economies got hurt; furthermore,
those injuries were even more severe due to external shocks and no sign of
stopping.
Therefore, the operation of commercial banking systems is one of the most
seriously affected areas. There had been many opinions that this can be considered
as a new economic recession since the 2008 crisis stemming from the real estate
industry. This research was conducted to consider whether this disaster may raise
another global financial crisis or not based on the previous financial crises.

1.2. AIMS AND OBJECTIVES OF THE RESEARCH

- This research described the effects and devastation of the epidemic on the
global economy, focusing on analysing the impacts on the international financial
banking system.
- The research also fully analysed the prospects for the recovery of the
international banking market in general, and the development opportunities from that
recovery.
- The study also investigated the depth and breadth of the global recession
storm impacting on the global financial system. The new global economic downturn
was the first since 1870 that originated from a pandemic; leading national
policymakers had to consider implementing additional powerful interventions, rather
than letting the economy recover itself after the recession through bailout packages
and fiscal policies.
- The study assessed the long-term effects of the recession on the prospects
for long-term economic development, a serious decline in human resources and the
fissure of trade and supply links by focusing on three factor groups: black swan,
macroeconomic and banking factors.
- Finally, the study offers solutions to promote the recovery and development of
the global economy based on the strength of the international banking system;
including scientific and technological advances in digital connectivity, e-financial
service packages, as well as recommendations for appropriate business policies and
decisions.

1.3. METHODOLOGY AND DATA

The main methodologies were conducted based on both qualitative research
while data resources were from economic reports and research papers from reliable
sources. Qualitative research: via case studies and practical observations that
financial institutions and countries performed policies to prevent an increase in
economic disaster; simultaneously analysing the developments and situations that
financial institutions have applied to recover from previous economic recessions.

1.4. STRUCTURAL SUMMARY OF THE DISSERTATION

 The research included five chapters. While the first chapter had introduced
the aims – objectives, methodology and data resources of the research. The second
chapter focused on previous research documents assessing the impacts of the
disaster to the global economies and international banking sectors; and the ways to
respond to the disaster; then summary findings and critical review of those research
documents. The third chapter made a description of methodology (qualitative
method) and data resources of the research. From those methodology and data, the
research carried out analysis of economic indicators and qualitative data in the next
chapter. The final chapter summarizes the findings and recommendations of this
research, also pointing to the limitations and suggestions for the further research.
 

CHAPTER TWO: LITERATURE REVIEW

2.1 INTRODUCTION
The objective of this chapter is to synthesize theoretical reviews related to the
effects that the Covid-19 pandemic has caused to the banking industry in general
through research articles, reports, etc. In addition, the author also tended to analyse
and evaluate the content of previous studies on this issue, thereby forming a
framework and theoretical foundation to analyze the impact of Covid-19 to the
banking crisis in a specific context of Bloomberg.
In this chapter, there are three main parts including the introduction part, literature
review part and the conclusion part.
First, the parts of introduction will describe the purpose of literature review for
the entire study. In addition, this introduction part will cover the main content of each
section in this chapter, what issues the sections will deal with.
 The second part of this chapter consists of main theories from literature that
will be used for analysis. This part is considered as the most important part of this
chapter because it deals with the whole theory from previous relevant studies, which
includes analysing from the situation of bank crisis due to the pandemic, the
problems that firms in banking industry have faced during the epidemic as well as
the solutions that they have come up with. Then, the author came to some personal
evaluations about these measures that were really effective or not.
The third part is the conclusion for the chapter. In this section, the author will
conclude through summarizing all literature, analysis. Moreover, achievements about
theory and framework were also displayed in this part, which will be used to apply for
analysis into specific contexts of the study.

2.2 LITERATURE REVIEW

2.2.1 Lessons from previous financial crises
“The Great Depression of 1929-1933 and 2007-2009? Parallels,
Differences and Policy Lessons” of Peter Eigner and Thomas S. Umlauft, 2015
These articles made a comparison of the causes and developments of two
major world financial crises, the Great Depression from 1929 to 1933 and the global
financial crisis in the 2007-2009 period. After that, the articles gave many lessons
related to financial system instability (real estate bubbles, subprime debt, economic
inequality problems, financial products causing systematic risks). These two global
financial crises were the worst since World War I. In both crises, the US banking
system has always played a key role in letting the crisis spread around the globe
when the banking system is mis-constructed and loosely managed to cause chaos.
finance increase.
 While during the Great Depression, the US’s nominal gross domestic product
fell 29%, pricing level also fell 25%, unemployment rate stretched out more 20%,
approximately 9,000 bankers stopped common operations. In the 2008 crisis, the
global GDP in 2009 had the strongest drop in the past 60 years. At the same time,
there was a great decline in economic resources from other countries until now, like
Brexit, European government debts. The intervention of governments of the
countries is the main difference between the two crises. During the Great
Depression, the governments became more passive when it came to policy to
prevent crises developing. However, the role of the government in the economic
recovery in the 2008 crisis became more pronounced.
Finally, Peter Eigner and Thomas S. Umlauft pointed out some lessons from
those crises:
- Real estate bubbles leading to a series of defaults, and then bank run
- A loose legal framework that includes regulations on risk management
and equity-debt structure
- Banking institutions had been granted too much power than allowed
leading to bad decisions
- Legal intervention was needed to prevent the crisis spreading
However, the 2020 recession bore different characteristics from the two
previous great crises. The aforementioned lessons whether happen or not happen in
the immediate recession will be the focus of this research.
COVID-19 and non-performing loans: Lessons from past crises (Anil Ari,
Sophia Chen, Lev Ratnovsk, 2020) is a fairly detailed research on the problem of
solving bad debts from the banking crisis. COVID-19 followed the global economic
crisis. This leads to an increase in NPL. The sustainability of bank reporting is
reduced, the economic recovery is stagnant, and bank credit is significantly affected
by high debt (Aiyar et al. 2015, Kalemli-Ozcan et al. 2015). It can be seen that high
debt is one of the typical characteristics when the bank is in crisis and this problem is
studied a lot. This paper has been collecting data on banking crises since 1990.
 Economists say this is a crisis that has caused large public debt, which has
led to an increase in many bad debts, and the problem of resolving bad debts will be
even more difficult. First of all, the article shows the status of NPL. Normally, bad
debt accounts for 20% of loans, but in many cases, the ratio will vary in countries
(sometimes up to 50% in developing countries). The probability of a bank avoiding
bad debt is high below 0.25%. The crisis has left a lot of consequences, the bad debt
ratio often increases sharply by 3.4 times, and even up to 10 times. Thus, the NPL is
increasingly high in the case of a crisis bank. Next is solving the bad debt after covi.
19. Solving the bad debt is always a difficult problem for economists, but it is
necessary to help the economy recover.The article shows some useful measures
such as:Reassessment of financial statements to review capital structure.Divide
assets into 2 types of good and bad assets. This will make the bank's financial
problem more transparent, giving the bank many loan opportunities.
In summary, the paper summarizes the measures that can solve bad debts. If
the recession is short-term, the reason may be because the company is illiquid.
Besides, the report also compares the solution of NPL in 2020 compared with 2008.
In 2020, the public debt ratio will increase, in addition, the slow economic recovery
rate after the epidemic will make the bad debt ratio. higher. Thus, the introduction of
policies to resolve bad debts is the situation that needs to be resolved as soon as
possible to avoid causing a crisis for the economy.
Through assessment, we can see that this article gives quite detailed
information about the status as well as solutions for the NPL. The article has many
models and tables to compare the fluctuations in bank debt before and after the
pandemic. That article is really necessary for this research article, because NPL is
one of the most fundamental features for the banking crisis.
2.2.2 How banking system over the world responded to the impacts of
COVID 19
“Banking system resilience in the time of COVID-19” of McKensey.
 In July 2020, McKensey - a global financial consulting company - released a
description report about the ways banking systems over the world responded to the
impacts of the COVID 19 disaster based on capital cushions. First, the report
conducted a review of the 2008 financial crisis, which was triggered by a direct shock
from the banking industry; meanwhile, the current shock originated from a world
pandemic and the banking system just was an affected object. However, the banking
system plays an important role in the process of supporting economic recovery
through supplying many loans to organizations affected by the disease.
Unlike the financial crisis in 2008, the world banking system entered the
global economic recession in 2020 by the pandemic with a more dominant position.
By applying Basel III - a comprehensive standard set of reform measures built to
improve regulations, supervision process and risk management of the banking
sector, Europe’s CET1 ratios were 13%, this number in the UK reached 14% while
12% was in the US. As a result, the global banking system could absorb $100 bil to
$400 bil loss in CET1 and be ready to decrease CET1 ratios to 6 – 8%. Furthermore,
banks all over the world can continue to resist the expansion of the global economic
recession based on a capital conservation buffer with the value of 2.5% total risk
weighted assets. After that, McKensey had built scenarios for resilience to the world
economy after the pandemic:

(Resource: McKensey)
 In which, there are three most likely scenarios: the global economy can
recover successfully by 2023 compared with before the time of the outbreak based
on scenario A1; while scenario A3 made the forecast in 2021, scenario B2 gave a
negative assessment of the effectiveness of public health.
 McKensey forecasted that capital reserves of many banks in the US will get
the lowest reduction in 2021 if the pandemic is successfully controlled; while banks
in the EU will reach the lowest in the 2022-2023 period. In the worst case, CET1 of
almost all banks may be lowest at 5.5%. In each zone, banking managers and
government agencies must know their position to make the right decisions because
raising additional capital will be impossible.
Finally, McKensey suggested government intervention in the banking system.
The government should put in place policies to support socially vulnerable people,
small and medium companies, and other special sectors such as sustainable energy
industry, medical services and even aviation via national and international banking
systems.
Report of SRS "COVID-19 and the Banking Industry: Risks and Policy
Responses", 2020 only produced a report analyzing the impact of the global
pandemic on the world economy, and specifically on the banking industry. In fact, the
bank operates on the savings of individuals and households and uses it as a fund for
its operations. This paper has studied quite sufficiently and in detail about each
aspect that banks are affected. This report has studied quite adequately and in detail
about each aspect that banks are affected. Specifically, the bank's items threatened
by pandemic are as follows: bank debt, capital structure, the influence of the items in
the financial statements to consider the level of losses in the operational situation
and financial activities of the bank.
 In addition, the report also addresses the issue of relief from the Federal
Reserve, FDIC in order to minimize the risk for banks. The report uses year-to-year
data, as well as a table to compare figures to identify the financial situation of the
bank. As such, this paper explores Covid 19's impacts on the banking industry, as
well as current solutions to help the banking industry overcome this global crisis.

The activities of the bank are closely related to all changes of organizations
and individuals in society. Therefore, with the impact of the COVID-19 pandemic,
there will be a significant impact on the banking industry. In particular, it can be seen
that out of the 11 largest banks in the world, China accounts for 4 banks. Thus,
COVID-19 has a great pressure on China's economy, or more clearly the banking
industry. Therefore, Oliver Wyman, 2020 published the report "COVID-19 and
financing services in China" to address the impact of service industries by this
epidemic.
 First of all, the report summarizes the table before and after the epidemic. The
5 service sectors in this report are: Banks, securities firms, insurance companies,
asset managers and wealth managers. Before Covid, for the banking sector, the
growth rate of assets and profits tended to decrease, but remained above 5%. But in
the time of COVID, accumulated bad debts increased, the bank lost the ability to
manage bad debts. After that, the report offers solutions to minimize bad debts, as
well as help banks strictly manage NPL. For example, stimulating consumers to sign
up for health insurance packages, thereby making the bank gain a considerable
profit. Bank of China needs to reconsider the business process in the period of
diversifying production and product sourcing.
Strict management of non-performing loans and maintenance of long-term
credit are essential for banks to anticipate an increase in non-performing loans.
However, COVID also brings new opportunities for the service industry, such as an
increase in online services (the sales of mutual funds increased by 400% in the first
2 weeks of February). Then, are the solution models for banks in this outbreak. That
is, health care is closely linked with banks to minimize risks, as well as increase
product productivity. After proposing that strategy, the report also announced the
bank's performance on a business scale.
In summary, with the introduction of live data and specific facts, the research
has shown the risks posed by COVID to the banking industry. Besides, it also
presents opportunities and challenges for the banking industry now, and finally the
solution. This paper, mainly focusing on solutions for banking services during the
COVID season, does not analyze the impact of COVID on aspects of the banking
industry. Therefore, it is difficult for readers to imagine the impact of COVID on the
banking crisis. It is even more unclear what the government's policy has done for this
service industry.
 Last but not least, the “Effects of Covid-19 on the banking sector: the
market’s assessment (Iñaki Aldasoro, Ingo Fender, Bryan Hardy and Nikola
Tarashev, 2020)” has synthesised fully the data as well as assessment of banking
industry during the pandemic of Covid-19 and its effects. Indeed, the banking
industry has been hit harder than other sectors because the Covid-19 pandemic has
been spreading unsettlingly around the world. This has led the financial market face
to a tailspin. According to the BIS Bulletin report, an assessment about performance
of banks was examined and it mainly focused on the prices of stock, credit default
swap (CDS), spreads of bond as well as rating of credit.
During the first seven weeks of the early year, the market was still stable
generally but almost changed quickly after that. Till the middle of February, the
market is getting more stressful, the prices of stock tend to fall in lockstep in the
whole market. However, when the stock market began emerging the onset of a
generalised sell-off on 5th of March, it has led banks to participate in the worst
performers (figure…).
Consequently, by the time of the April’s last week, the stock’s prices of banks
decreased much deeper than other fields which are the hardest-hit of the economics.

(Source: Datastream; FitchRating; JPMorgan Chase; BIS Bulletin)

 When the prices of stock fell down, the ratios of price-to book did also, which
was much under than one for banks in Europe and the USA on average. Banking
sector has suffered more and more due to both relative others and previous crises’
comparison. To be more details, although it has been recovered partially in recent
years, the stock’s price declines equally to the Lehman Brothers’ collapse period in
2008 (figure…). The spreads of CDS experienced the same performance. By this
development, the outlook from the rating of the bank's long-term began deteriorating
and displayed the concern about Covid-19’s impact on earnings of banks.
While conditions of the market were deteriorated, costs of funding indicators
in banks grew significantly. In the early of March, indices of bank’s bond spreads
enlarged in various maturities and currencies substantially. Nevertheless, this spread
was narrowed partly in the first week of April by following the political decision of the
Federal Reserve and the ECB (figure…).

Source: Markit iBoxx; BIS Bulletin

According to the characteristics of banks before the pandemic of Covid-19,
patterns of differentiation in the stock market were more pronounced than after
selling off initially (figure…). Especially, banks that have good capital recovered
much better than the poor one. Therefore, banks were rewarded by markets
because of their robustness. In terms of CDS markets, they have responded
remarkably during the period of pre-pandemic, which rely on short-term funding. In
more profitable banks, the CDS spreads fell more than before the crisis, which was
measured by “return on assets” (ROA).
 Source: Blomberg; Datastream; Fitch; Markit; BIS Bulletin
In Europe, banks have been plagued with low profit for a long time. In which,
the ROA of them notably hovered below than in other jurisdictions (figure…)
(Bogdanova et al (2018)). In general, with banks that gained less profit, they were
more likely to reduce their own outlook to suggest the scope going forward for
downgrades outright.
It is not differentiating among banks in the stock market regarding their ratings
before the Covid-19 (figure…). Investors in equity tend to concern more and more
about the overview of deterioration of performance outlook in banks, which was not
detailed to any rating of credit. As a result, the prices of stock broadly moved like the
categories’ ratings in the middle of February. In contrast, the CDS market has
penalised strictly the low rating banks. Banks that had the BBB+ rating or lower,
particularly in ratings of high yield, witnessed their spreads of CDS have the
strongest increase during the initial turmoil.
 Source: Bloomberg; Datastream; FitchRatings; Markit; BIS Bulletin
2.2.3. Global governments initiatives to date to support the banking industry
During the period when the Covid-19 epidemic drove the economy over, the
banking industry was also severely affected. A variety of policy measures that have
been taken in wide-range by national authorities to support sectors in the economy
and try to maintain the adequate liquidity in the system of finance.
Those policies consist of supporting debt moratoria and fiscal in large-scale,
guaranteeing credit, providing to affected sectors and borrowers with much-needed
relief, which includes households and SMEs in particular (World Bank Group, 2020).
Besides, in order to solve serious strains in the main funding markets, the liquidity
and monetary stimulus have been restored by the policy makers. By these policies,
the resilience and lending of the financial sector have been supported significantly.
 In addition, guidance to support national authorities have been issued by the
Standard-Setting Bodies (SSBs) with their efforts to supply sound and measures with
well-coordinated policy. There are several objectives in this guidance including (i)
national jurisdiction has taken supporting measures to combat the Covid-19
pandemic, especially in the careful design of general debt moratoria’s form; (ii)
existing flexibility within standard of globe consist of buffers will be made use by
encouraging the international financial community; (iii) additional operational capacity
will be provided for national authorities as well as financial institutes to response to
the sudden priorities of financial stability and (iv) protecting consumer will be
enhanced transparently. In general, all the SSBs’ activities aim to provide a steady
and coordinated response to support authorities, financial institutes as well as the
economy to preserve the financial stability then ensure that the market can continue
being its functions.
Overview of Statements and Guidance Provided by Standard-Setting
Bodies in Response to the COVID-19 Pandemic
 Source: World Bank Group, 2020

2.3 CONCLUSION
The Coronavirus epidemic can cause banks' bad debt to increase when
businesses and families are negatively affected. Credit demand may decline in the
first two quarters of the year. With the banking system, the Covid-19 epidemic is
reported to affect two important aspects.
 The first is that the demand for credit is reduced due to the lower demand for
credit of businesses and households, leading to difficulties in production and
business activities. Regarding the impacts, it can be seen that the consequences of
bad debts bring extremely difficult solutions. It has a negative impact on the
economy in general and the operation of commercial banks and customers in
particular. For the economy: Bad debt will increase the pressure on inflation,
restraining production and business activities. The biggest danger is that if the bad
debt with a large credit line can lead to a crisis of the banking and financial system
and the whole economy.For the system of commercial banks: Bad debt will make
commercial banks use capital inefficiently, reduce profits, bear cash flow risks,
reduce solvency for bank payments. From early 2020 to now, the Covid pandemic -
19 taking place worldwide has caused serious impacts on the economy - society in
general, the operation of businesses and the commercial banking system in
particular.
Based on past studies, we have found out how the bank is affected in the
COVID-19 epidemic. Typically, it is the NPL issue - a prominent issue that the bank
will encounter in a financial crisis. Besides, it can be seen that the recovery after
COVID-19 is affected by the capital structure of banking, as well as net returns.
Thereby are the solutions of the government, the bank to minimize risks to the
minimum, ways to reduce bad debts, .. to help the economy recover after the
pandemic.
However, most reports are made based on the assumption that the world will
be able to successfully control the pandemic by 2020 and begin the process of
economic recovery by 2021.
CHAPTER THREE: METHODOLOGY AND DATA

3.1 INTRODUCTION
The purpose of the chapter is intended to clarify the chosen methodology and
data. As stated earlier, this dissertation is intended to evaluate the impact of Covid-
19 on whether a new global banking crisis may be triggered through a process of
studying the factors that cause these crises. Before that, it consists of three main
groups of elements: Macroeconomic factors, banking market factors and black swan
effect. For each type of factor groups, the study applies different methodologies and
databases. The main sources of information and data are extracted from reliable
sources. Up to now, the Covid-19 epidemic is still raging around the world and the
economic forecasting process generally met many difficulties. In addition, the
research also conducted some objective assessments and analysis of the global
banking system situation before and after the epidemic, lessons from previous
financial banking system crises.
The banking system plays an important role in the circulation of capital
sources and the amount of money in an economy. The banking system consists of
many commercial banks, national banks and government agencies. The banking
system in each country is different from other countries, so the operation of the
global banking system is very complicated. There are many factors that affect the
health of the banking system in general.
There have been many models and methods built to ensure a strong banking
system that is strong enough to promote economic development. While this research
applies qualitative research methods. With macroeconomic factors, this research
applied to consider qualitative methods: analyzing macroeconomic policies used
mainly qualitative methods while analyzing macroeconomic indicators used mainly
qualitative methods. Banking market factors took advantage of qualitative methods
when focusing on analytical statistics. The last black swan theory concentrated on
qualitative methods when describing surprising, strong-impacting and inappropriately
interpreted events because Covid-19 might be considered as a black swan event.
 This chapter included distinctive five parts. While the methodology of this
research was presented in part two that had talking about each methodology of each
factor group, the main participants were global macro-economic indicators, micro
banking system indicators and criteria for a black swan event. The next part showed
some key formulas used in this research to analyze data collected. The fourth part
made a description to collect data that served this research.

3.2 METHODOLOGY
3.2.1. The Black swan theory application
The Black swan theory in “The black swan the impact of the highly
improbable” book of Nassim Nicholas Taleb
The term black swan was developed by Nassim Nicholas Taleb, a successful
professor in the finance field, book writer, and merchant on Wall Street. He
elaborated on the black swan theory in his own book, in which the black swan effect
has three main characteristics:
- Beyond far from normal predictions, rarely happen
- There were dire consequences when it happened
- There were many warnings before that incident happened.
Since a black swan event was unpredictable due to very extreme rarity but
still has disastrous consequences, it is essential that people always consider black
swan events to be a possibility and should have built plans accordingly. The dot-com
bubble of 2001, the global economic crisis of 2008, the Swiss bank announced the
floating exchange rate of Swiss-France were particularly black swan events. "In this
world, anything can happen!".
The first purpose of the black swan theory was not to try to make forecasts of
unpredictable events in the future, but to build a solid framework to prevent and
minimize damage from negative events while increasing exploitation of other positive
events. Taleb believed that global banking systems and international commercial
companies are very vulnerable and attached with the dangers of unpredictable
losses from dangerous black swan events. In terms of business and qualitative
finance, in particular, Taleb was critical of the widespread usage of the normal
distribution model applied in the financial field (Taleb, Nassim Nicholas, 2010).
 In order to extend the analysis process the black swan theory of Taleb, the
research used comparative methods. Following Pickvance (2005), a comparative
method was performed generally for explaining and detail understanding the causal
matters relevant to the characteristics of events or relationships often by a set of
explanatory variations or variables. There are so many ways to make a comparison
between two events (2008 crisis and 2020 depression), however the research
focused on variation-finding comparison. Comparative search method of variation
aims to build a set of criteria for the cause, character and intensity of the events by
analyzing the systematic differences between the events. The process of evolving an
event has its own way of functioning, as a result, the research tried to find a
connection between the most recent financial crisis and the recent crisis.
3.2.2. The banking crisis is caused by macroeconomic factors
There are many studies in the past that have shown that the macro economy
plays an important role in the financial crisis of banks. Ouarda Merrouche and Erlend
Nier, 2010 have successfully studied using qualitative method, regression function to
explain the formation of crisis. Thereby, in this study, the author has selected 3 main
macro factors that affect the analytical objectives. Specifically, there were 3 factors
of GDP, inflation rate and interest rate.The author has provided convincing evidence
of GDP based on the ratio of bank credit to GDP. Low GDP growth has a significant
relationship with banking risk. Because it can be seen that GDP directly affects the
capital inflow of any business, not just banks. The increased risk has been combined
with inflation and high nominal interest rates because a bank conversion is unlikely
to be possible. Stable inflation has been shown to exist in advanced economies,
which has led to expanded trade credit; and underdeveloped countries have
synonymous with poor commercial credit (Hume and Sentence, 2009).
In addition, in 1997, Asli Demirguc-Kunt used a multivariate logarithmic
economic model, the author pointed out that the probability of a crisis occurring is
proportional to the underdevelopment of the macro environment, especially during
the period of high inflation and low growth, in addition, the higher the actual interest
rate, the more the bank has paid attention to the liquidity issue.
 Therefore, based on 2 studies by 2 authors, Ouarda Merrouche, Erlend Nier
and Asli Demirguc-Kunt, we can conclude that 3 macro factors are the cause of the
banking crisis: GDP, inflation rate, interest rate, Evans Agalega & Samuel Antwi,
2013 stated that lending interest rates have a large impact on GDP. This means that
GDP and interest rates are negatively correlated. Falling interest rates lead to
increased GDP, the interest rate increase leads to GDP decrease. Shariq ahmad
Bhat's study showed the model between them
Figure :

Source: Shariq ahmad Bhat's, 2016

3.2.3. Risk modeling
In many companies, especially in the banking industry, the securitisation,
rating of credit agencies as well as ineffective risk modeling are reformed. It seems
that there is a casual relationship among each other in underwriting standards and
corporate governance lapses.
For many years, risk modeling has been used prevalently in current industries
and they have made integral to businesses for example financial services and
energy. Recently, companies in both public and private sectors realized and started
adopting the simulations of risk models widely in order to address risks of strategy,
operations, compliance, geopolitics, etc. Models making has become more and more
practical because of wider available data and more analysis abilities; besides, the
environmental risks are also increasing that make building a risk modeling get more
valued.
Figure…: Basel III framework
 Source: Compatibl, 2020

The international framework of a liquidity risk was introduced by the Basel III
for the first time, which could reflect the excessive liquidity risk experiences to take
serious flaws in managing the risk of liquidity of banks in running to crisis of finance
erupted in August of 2007 and linked to the negative external factors. Banks always
play significant roles in the provision of liquidity to them during normal as well as
crisis period. The reason is because of interaction among banks in their operations,
that is obviously necessary. The purpose of the Basel III framework after that is
protecting the stability of finance and sustainable promotion of economic growth. To
be more detailed, if the capital level is high, the financial crisis probability in the
future is small (Ulrich et al., 2011).
 Additionally, many firms in the financial industry have identified that the
inadequacy of liquidity risk management has been one of the most critical issues
(Senior Supervisors Group, 2008 and 2009). The committee of Basel has developed
the “Principles for Sound Liquidity Risk Management and Supervision” to build up
standards for managing risk of liquidity and supervisory practices in 2008 (BCBS,
2008). From that, the framework of liquidity risk was established, which was
considered a revolution of the regulation of Basel III in December of 2010 (BCBS
2010). As a result, the Liquidity Coverage Ratio (LCR) aims to issue the lowest level
of high quality of liquid assets that can suffer a scenario of acute stress for one
month. Therefore, the LCR will also be used in analysis and evaluation in this
dissertation.
The reason why the author chose the LCR to apply in this paper is because
with previous evidence, the financial crisis's most common feature is requirement for
liquidity. When funds are needed for businesses, individuals and entities of the
economy to operate and invest, but financial institutes were difficult even impossible
to lend them and led to a major loss for investors. These result in shifting funds to
low-risk assets like bonds of the U.S. Treasury. Therefore, the disruptions of finance
could be vulnerable by borrowing a range of sectors and that lé to a shortage of
systematic liquidity. Regarding the “capital requirements” index, this is considered as
a key tool of armory of regulators due to several important functions it can serve
(Avgouleas, 2015).
As such, capital requirement is often used to measure and manage risks for
economic growth, not usually serving crises. Furthermore, another ratio was also
mentioned in the new Basel III capital framework - the “Leverage Ratio”. This ratio
has the purpose for restricting the excessive leverage’s build-up in the banking
industry to prevent from destabilising the processes of deleverage, which may
damage the system of finance and the economy broadley (BCBS, 2013). As a result,
the Leverage Ratio is often used to measure the stability of the banking industry. To
sum up, to measure and evaluate the crisis of the banking industry, the author has
chosen the LCR as the most reasonable indicator for this analysis.

3.3 BREAKDOWN OF METHODOLOGY IN DETAILS BUT IN PRECISE

 LCR is used as a measure to compare the liquidity buffer and the net cash
outflow within the time of 30 days. Specifically, to calculate the LCR, the formula is
used as follow:

The standard of the LCR need to meet the requirement of lower than 100%
the log regression model of macro factors was given as follows:

Thus, it can be seen that the research model used by the author is very
complicated. The model included the dependent variable, the time variable and the
dummy variable. In which, the dummy variable takes the value of 0 if there is no
crisis, and 1 when the country has a crisis. X (i, t) has been called the probability that
crisis will occur in country i, at time t. P (i, t) is the dummy variable of variable X (i, t)
when that crisis occurred.

3.4 DATA COLLECTION

3.4.1. The Black swan theory of Nassim Nicholas Taleb
This dissertation had collected data related to human losses and financial
losses caused by Covid-19. Contemporaneously, this research also gathered
evidence to prove that the Covid-19 epidemic was considered to meet the conditions
of a negative black swan event. The method to collect in this section was from
secondary data collection methods that data sources had earlier been published in
book, newspaper, magazine, journal, online sources. The financial crisis of 2008 was
seen as a Black Swan event (Nassim Nicholas Taleb, 2010), but the recession of
2020 was seen as a White Swan event (Nassim Nicholas Taleb, 2020), so what's the
difference? To handle this question, the research proposed to use Comparative
research methods. Comparative research is a commonly used method to make the
difference from phenomena to the nature of two or more problems. From there,
generalizing specific cases to testing hypotheses as well as the theory of the black
swan theory of Nassim Nicholas Taleb.
 3.4.2 Macroeconomics
With the advent of econometric models, data collection has always been very
important. The data has been collected by the authors with reliable financial sources.
The author has obtained from the World Bank, from data available from previous
studies. For example, the author Asi Demirguc-Kunt study collected data from 65
countries, over 14 years from 1980-1994. However, in the selection process, the
author had to leave many countries for lack of data on inflation, GDP growth rate, as
well as interest rates. Therefore, this method of study has inevitably caused the lack
of observations due to lack of standards. As a result, the authors worked hard to
gather enough data for the study.
3.4.3. Risk modeling
Risk modeling is considered as a representation in mathematics of a system
and it is commonly incorporated in probability distributions. Thus, by using this
model, the relevant historical data will be used to analyze as the secondary data.
Moreover, asking experts is also applied to understand the probability of risk events
that can occur as well as potential severity of it. Furthermore, collecting from the right
database is suggested in this dissertation to help decision makers get more
comfortable with the models and background assumption of them to apply if
meaningful decisions need to be made.

3.5 CONCLUSION
The Covid-19 epidemic is still happening in the world with unpredictable
developments. Therefore, the data requirements for the impact of the Covid-19
epidemic are often formulated based on projections. The research was conducted
based on qualitative research methods for three groups of indicators. While the
research considered to prove the Covid-19 disaster as a black swan event based on
the characteristics and consequences of Covid-19 pandemic following the conditions
of a normal negative black swan event.
 Bank solvency is affected by macro factors. When banks are insolvent, they
are more susceptible to increased debt, leading to an increased risk of financial
crisis. Macro indicators are included in analytical models to create relationships
between variables. Research results show that, to ensure the best liquidity risk
management, most managers often ignore external factors without knowing that
these are important supporting factors for their ability to manage. Therefore, the
regulation of macro factors such as inflation, unemployment, and low GDP growth
rate is a way to help banks avoid the highest risk of default.
Managing liquidity risk is indispensable in both normal and stressful periods;
thus, risk modeling should be developed in every company, especially in the banking
industry. The Basel III Framework will be used to have a comprehensive analysis
and view in this dissertation and to be more detailed, the formula of Liquidity
Coverage Ratio (LCR) will be applied to calculate for the company. After that, some
evaluation will be concluded in this dissertation.

CHAPTER FOUR ANALYSIS AND RESULTS

4.1. INTRODUCTION
This chapter aims to analyze and evaluate the current situation in the world
financial markets. The author conducts analysis of the causes that have caused a
world financial crisis, analyzes the manifestations of the crises that have occurred in
the past. In addition, data is collected to find signals of a crisis in the current period
(2020). From there, the conclusions are made to see whether there is a global
financial crisis at the moment or not. Then, a few recommendations on each aspect
will be given to the banking industry to avoid the crisis.
In this chapter, there are four main parts including the introduction part, data
analysis part, summary of the results interpretation and the conclusion for the
chapter.
First, the parts of the introduction will describe the purpose of chapter 4. In
addition, this introduction part will cover the main content of each section in this
chapter, what issues the sections will deal with.
 The second part of this chapter consists of the reason for the crisi in 2020 and
comparison with previous financial crises. Then, the author tends to analyze the
crisis signs in the year of 2020 followed by three models including “The Black swan
theory of Nassim Nicholas Taleb”, “Macroeconomics” and the “Risk Model”. By
comparing it with the previous crisis, the author will have the conclusion that whether
there is an existing crisis in this year or not. Eventually, some solutions and
recommendations will be given to the banking industry to deal with this situation.
The third part will have some summary of the results interpretation from the
whole analysis. The last part is the conclusion for the chapter. In this section, the
author will conclude through summarizing analyzed issues.

4.2. DATA ANALYSIS

4.2.1. The reason of the crisis in 2020 and comparison with previous
financial crises

Before the COVID disaster happened, the IMF made positive forecasts for the
world economic outlook and some biggest economies in 2020. On the report of the
International Monetary Fund in January 2020, global economic growth this year has
been down from 3.4 to 3.3 percent. The IMF gave China's growth forecast for 2020
adjusted 0.2% points higher to 6%, while the US was down 0.1 percentage point to
2.0% (IMF, January 2020).
 However, during 2020, the Covid-19 disaster had destroyed the global
economy and caused many nations to sink into recession, however whether the
world is going to witness another economic crisis is difficult to predict. In the period
of 2019 - 2020, there were many events beyond the forecast of economists: COVID
19, trade war, post-Brexit, India leaves RCEP, East Asian tensions, oil market
volatility, US vs. EU, big tech start-ups struggle. Almost those events were heavy hits
on the overall development of the global economy. The world experienced the lowest
GDP growth rate since the 2008 financial crisis. Furthermore, IMF also revised their
global economic prospects in Jun 2020.
 Other major economies in the world with economic growth potential in 2020
are forecasted by the OECD to be less than satisfactory. While eight big global
economies (France, Italy, the UK, EU, Canada, Germany, US and Japan) will go
through a period of deep recession.

(Resource: OECD, 2020, https://www.oecd.org/economic-outlook/)

The Covid-19 disaster with a quick spread along with the closure of many
countries’ economies had led to an unparalleled global economic recession in
history. In the world economic outlook report in Jun 2020, the World Bank forecasted
global GDP 2020 may decline to 5.2 percent - the largest decline in eight decades.
Furthermore, this recession will be controlled in 2020 by supporting the world
economy’s recovery gradually in 2021. This is the first economic crisis caused by a
disease. The current economic decline was coined by the Covid-19 is the first
economic decline with a single reason inchoate from a disease in the 150-year past.
From 1870, the world has witnessed 14 distinctive recessions on an international
scale and coined for many different starting causes. Especially the global recession
in the 1917-1921 period, impacted from the Spanish flu in 1918-1920 period,
however the main reason was from the World War I influences. The Great
Depression had started with the financial system defeat; while the economic crisis in
1975 was principally resulted from the oil price falling. The 1982 government debt
crisis had been activated by a factor group encompassing monetary managing policy
changes of the Fed and the booming of government debt in Latin America countries.
 The economic decline in 1991 was related to the financial system collapse,
exchange rate policy scrape in the European common currency system and
imbalance around the movement from centrally planned to market economies in
Eastern European countries after the fall of the Soviet Union. In spite of the fact that
H1N1 had outbreak in 2009, it did not lead to the 2008 global financial crisis.

4.2.2 Analysis of crisis signs 2020

4.2.2.1 The Black swan theory of Nassim Nicholas Taleb

2008 global financial crisis as a black swan

The financial collapse in 2008 deriving from the housing market in the US was
one of the most famous and latest as a the black swan event. The impact of the
2008 crisis quickly spread globally and left unpredictable consequences.
 The consequences of the 2008 financial crisis were so dire that many
companies were on the brink of bankruptcy. The enormous negative influences of
this crisis was quite simple to see in the under picture with two largest collapses of
financial corporations at the top, Lehman Brothers and Washington Mutual that went
bankrupt despite the great support from the US government because of massive
loan defaults, poor liquidity and severely devalued assets (housing collaterals).
 Nassim Nicholas Taleb pointed out the black swan behind this crisis (Nassim
Nicholas Taleb, Dec 2010):
 - Tail risks: increasing the potential risk of low-probability events and not
taking into account the domino effect of the events together (consider
subprime loans to be independent of each other)
- Asymmetry and omission of relevant bailouts related to “too big to fail”
matter while asymmetric payoffs was always up and never down; and
even one happened flawed frequency in one year can blow away the
achievements of many years
- Using qualitative methods (Var and Iatrogenics of measurements)
helps to conceal and promote tail risks. Many forecasting models are
given that show the measure of risks in the present but in fact, these
risks occur at any time
- Rising tail risks via “Internet”, “globalization” and “internationalization”
- Increasingly misunderstanding about the tail risk
- Growing misunderstanding of tail risks when many financial models
considered almost risks under “discounted rate” and tried to find the
true value of “discounted rate”, interpolation and extrapolation matters,
true fat tail effect removal.

After the great lessons of the 2008 crisis, many financial institutions and
hedge funds today consider tail risk as an investment strategy in the bear market.
Many funds were built to protect investors from the severe slump of the market while
still reaping profits when the market rises.
(Source: Scalable Capital, https://seekingalpha.com/article/4077400-black-swan-
portfolio)

Many hedge funds have built black swan portfolios for their clients.
Buckingham portfolio is a strategy to reduce black swan risks when Larry Swedroe
and Kevin Grogan released “Reducing the Risk of Black Swans” book. They used
smart beta strategy when considering four main matterts: Alternative lending,
Reinsurance, Variance Risk Premium, Alternative risk premium (Robert Powell,
2019).

World economic recession 2020 as a while swan

This claim is based on the probability and surprise of an event. There have
been many previous studies asserting that the probability of a pandemic occurring at
a certain level is 1% in any given year. Therefore, when considering the 50-year
difference, the probability of a pandemic outbreak is 40% (A.J. McMichael, 2013).
But an event like COVID-19 is not uncommon. Indeed, human history is fraught with
such events, there have been many warnings being given, and the mathematical
incidence of an event occurring in recent times is great. With a pandemic, the
questions are not “if”, that is often “when”.
 Taleb gave his opinion in his essay in Neue Zürcher Zeitung that a global
pandemic is clearly a white swan. Any pandemic is inescapable because it exists
as a result of the structure of the present world, even their economic outcomes may
be more dangerous of increasing interconnectedness and exaggerated optimization
(Marc Lustenberger, 2020). Furthermore, in recent times in August 2020, Russian
President Putin has announced that Russia had successfully created an immunity
vaccine against Covid-19. This successful advancement of this vaccine has been
extremely important for the whole world, in the covid-19 pandemic, 20,279,705
people infected and 739,750 died until Aug 2020. Many more positive forecasts
about a world economic recovery prospect after the pandemic have been made.
Finally, it is possible that the Covid 19 disaster has come to an end.

4.2.2.2 Macroeconomics

It is easy to see that the cause of the current pandemic crisis is mainly due to
the dramatic drop in GDP. COVID-19 not only caused serious consequences for
human lives, but also caused severe consequences for economic crises. Global
forecasts show that the world's GDP will fall 5.2% by 2020 ( Reagan Haynes, 2020)
because of the pandemic, which will be the strongest global recession in decades.
Requires governments to make efforts to come up with measures to prevent risk
reduction, and activate the fastest financial system. In the long run, deep recessions
caused by pandemics will affect investment and consumption of people. This will
affect the global supply and trade linkage.

Chief Economist Team 2020 has predicted that GDP of the EU will fall
sharply, possibly up to 13%, despite stimulus measures from the government. It is
worth mentioning that GDP reflects the standard of living of the people. When GDP
has a sharp decline, it means that people have low income sources, even lose their
jobs. This will result in very low ability to repay bank loans from people. Many people
will fall into insolvency, or be unable to repay their debts.
 Historically, in 2017, Seán Kenny et al demonstrated that after a banking
crisis, industrial production fell 8.1%, and there were signs of gradual recovery. next
year. They made another conclusion that the service industries were less affected by
the banking crisis, but the manufacturing and industrial sectors were significantly
affected. In short, the banking crisis will result in a significant decrease in GDP.

Another evidence, the banking crisis in 2008, the optimism in people's

consumption decreased, which meant a decline in GDP. At that point, they would be
risk averse, and become less spenders, leading to a significant decrease in the
demand curve. At that time, companies had to reduce production costs significantly,
so the number of employees was laid off significantly, unemployment increased. As
a result, the revenue of the companies has been drastically reduced.
9

(Source: ONS IHYQ)

Figure : Situation of UK economic growth after the 2008 financial crisis.

Next is the government's policies as well as solutions to state banks. The role
of the State Bank to step by step support businesses and people to overcome the
difficulties of COVID-19 pandemic. . In the UK, the bank has taken measures to help
households and businesses here be supported in a timely manner. These measures
will help keep businesses and people employed and help prevent temporary
disruptions that cause more lasting economic damage.
 Here, the Monetary Policy Committee (MPC) has decided to reduce by 0.25%
with bank interest rates. The MPC unanimously voted for the Bank of England to
introduce a new Term Financing program with additional incentives for SMEs,
financed by the issuance of central bank reserves. The MPC voted unanimously to
maintain British non-financial investment-grade corporate bonds, financed by the
issuance of central bank reserves, at £ 10 billion. The Commission also voted
unanimously to maintain UK government bond purchases, financed by the issuance
of central bank reserves, at £ 435 billion( Bank of England, 2020)

The lowering of interest rates will create conditions for businesses to continue
to have capital, with bank loans combined with their own capital to overcome
difficulties, continue production and business. Besides, it will help households to
maintain their own life without being dependent on or falling into a state of no work.

However, when banks announced to reduce interest rates with attractive

credit packages to support businesses in trouble, this also affected the bank equally.
According to experts, the reduction of deposit rates and lending rates will have a
direct impact on the business operations of banks, including credit growth targets
and net profit margins. When the lending interest rate decreases, it will increase the
ability of businesses to absorb capital, thereby increasing credit. However, the above
theory is only reasonable in a normal context, while in the context that the epidemic
is having a great impact on the business and people's activities, it is still necessary to
wait for practical data. It is not excluded that the State Bank will continue to propose
policies to further reduce lending rates. In addition, since translation effects can be
large-scale, credit assistance packages may not only be available to businesses that
are directly affected by the translation,but may also extend to those that are subject
to impact. indirect effects, or the whole economy. Thus, in that case, the effects of
translation on banks' NIMs will likely be stronger than expected.
 In the history of the US up to now, oil prices have never plummeted terribly,
down to minus 37 USD / barrel. The reason for the negative WTI oil price, oil experts
assessed that it stemmed from the social gap caused by the COVID-19 epidemic,
which made the demand for fuel plummet. At the same time, the US oil stockpile was
in excess. Lowering the price of oil to free up inventories. It has been demonstrated
in the past about the impact of falling oil prices Oil prices have fallen sharply so it
should run the risk of banks losing big, leading to reduced investment and repeated
drop in demand (Tejvan Pettinger,2017) . Falling oil prices can be seen as a sign of
a banking crisis.

4.2.2.3. Risk modeling

In the past, when within a country, there are many banks that have to face
serious solvency or problems about liquidity parallelly. This is not only because of
being hit by the similar outside shock but also one bank’s or a group of bank’s failure
and effect on others in the system. In particular, a situation of a systemic banking
crisis is when corporations and financial institutions of a country experience a wide
range of default as well as face significant difficulties that repay contracts on time.
Thus, a sharp increase of non-performing loans will be witnessed and lead to almost
the capital of the aggregate banking system exhausted.The prices of depressed
assets accompany this situation (for example of equity and prices of real estate as
well) on the run-up’s heels before the crisis. Besides, the rates of the real interest will
increase sharply and the capital flows will go down slightly or reversal. In some
circumstances, running on banks from depositors triggers the crisis and in most
cases, the financial institutions realize a systemically important role in distress.

The liquidity squeeze in 1998’s fall can be an exemple and the sovereign debt
default in Russia is following (Figure…). A volatility in the globe’s financial market
was led to and spilled over to the U.S that created the Long Term Capital
Management’s (LTCM’s) failure of hedge funds. This resulted in a disrupted market
liquidity which includes credit’s supply from market sources such as corporate
bonds, equity, and commercial paper.

Figure: Commercial Paper 1997-2009

Source: Nana Mora, 2010

In the year of 2020, there have been some signals of a crisis in the banking
industry. When the Covid-19 pandemic has affected the repercussions of the
sobering public health, the global businesses has been shuttered by the swiftness
and severity of the outbreak in a long time. About the banking sector, a margin and
volume compression will likely be seen due to the lower rates of interest and client
activity’s dampening as well as investment (Gerold, 2020). When the clients have to
come under pressures of increased liquidity, it is a particular threat for a credit risk. If
credit quality among counterparties deteriorate, it can result in a downgrading rate,
rates of greater default then lead to higher pressure on profitability as well as
regulatory capital. In this status, banks play an important role in supporting
businesses to bridge the shortages of liquidity. Thanks to the dramatical intervention
of central banks, there is a decrease of banks’ short term funding volatility. However,
in the long term, those banks might have to face a larger spread of funding and need
to adjust the funding strategies of them.
 The activity of economics is getting slower and this situation will lead to a
higher pressure for wanes and liquidity in the market. There is a fact that the covid-
19 pandemic is still riding around the world continuously with a high rate. Economic
effects are being swamped by the liquidity of the central bank and create a
disconnection among economic fundamentals of market pricing. The collapse of the
spreads in U.S high yield credit is one of the best highlights about the impact of
liquidity support (figure 4.9)

Figure. ICE BofA US High Yield Index Option-Adjusted Spread

Source: Sean Fenton, 2020

Furthermore, the corporate sector has been left for cash by the pandemic of
Covid-19. Till now, short-term funding has been provided by a relatively robust
system of finance, mainly via the bank credit’s revolving lines which are available to
most firms. regarding JPMorgan, by the end of March, a huge number of companies
through revolver drawdowns have borrowed a number of $208 billion, which
accounts for 77% of the available funds in the facilities.
 However, due to the plain report in this year, this approach has not worked in
economics. In fact, the profitability of economics has been going down globally and
almost market returns have been shrinking. Besides, the economics have also
witnessed a lackluster growth of income. Although most banks have continued
efforts in cost reining, they could not sustain to gain the needed performance to
secure their future. The current Covid-19 crisis created the strongest test for the
financial system around the world from 2007-2009 and whose effects of the long-
term are still unknown. Thus, the signs of economic recession in 2020 caused by the
covid-19 pandemic cannot be concluded for a world financial crisis.

With the difficulties that banks may likely face, they should take steps certainly
to address those challenges promptly to have effective management the current risk
of liquidity and have better prepare for actions in the longer term as follow:

(1) Liquidity challenges and management requests' rapid assessment and action:
because in the crisi of the financial market, the overarching goals of banking
organizations are cash preserving and liquidity assessment.The senior
management should have the highest priority in understanding the cash
requirement about the size, timing and funding. A focused and dedicated
team may be required for quick and effective responses to quickly react and
offer adjusted processes and innovative approaches. Executive management
should also sponsor operational and technical resources for the first and
second line of cross-functional teams’ defense. Besides,it is also necessary to
consider carefully to ensure that ongoing and business as usual operations
need to be continued to meet in which they have to deal with crisis related
issues at the same time.
(2) Strengthen the capabilities in reporting and monitoring liquidity: Banks need to
utilize updated information accurately to manage the liquidity during time of a
crisis. They can use the existing report, data, processes, resources and
tactical solutions that were implemented from the crisis in 2008 by enhancing
the liquidity’s scope, depth and timeliness. Some available tools for liquidity
management should be focused on to improve monitorìn and forecast on
expected as well as potential inflows and outflows, warning indicators on time
and limiting risk. Besides, banks’ liquidity monitoring also needs to cover
collateral and specifically availability, haircut behavior, quality of credit,
delivery calls, receipt calls, capacity of substitution and so on.
(3) Establish processes for coordinating regulatory responses: Banks need to
conduct processes so that to have effective reactions in required information
and in the needed report variations. Based on available reporting regimes and
implementation of inquiries which is established and expanded from those
regimes, Banks also should expect investigation using the financial market
crisis which is reputed as a pattern. The information, which must have to finish
these inquiries can be collected by an internal survey. Staff, who are in the
liquidity team should appraise about existing procedures which belong to the
reporting team whether they are enough capacity or not in the answers of
supporting regulatory and other internal requirements simultaneously. In
parallel, supplemental resources also need to be estimated to buy or not in
order to improve existing abilities.
 (4) Revise cash flow forecast and liquidity model assumption: In order to more
precisely reflect current and prepared conditions against COVID-19 crisis(in
consequence, such as renewal and modification in the economy ), the
Liquidity model and prediction of cash flow will need to evolve. Modeling
supposition should be evaluated in the recent environment situation involving
Asset haircut and cash flow timing (e.g., roll-off, money withdraw). Haircuts
and relevant assumptions should be upgraded based on the decrease of
market assessment. Consulting subject matter resources on assumption
reasonableness is encouraged.Moreover, Whether in-house modeling crews
can have ability to keep rate of progress in which revisions is essential.
Additional resources may be required to break inner limitations and weaker
abilities and solve the more heavy influences the more effective the more
possible.

4.3 THE SUMMARY OF THE RESULTS INTERPRETATION

The study examines Tabel's black swan hypothesis based on previous
markings of black swans. However, pandemic COVID 19 is not really a black swan in
the world. The effects of the pandemic on the stability of the global banking system
are almost short-term.

Liquidity plays an important role in financial markets, and is considered to be

one of the major causes of this market crisis. Compared with the present signs, it is
impossible to conclude that there has been an ongoing crisis. However, banks still
need to take the necessary precautions to deal with crises.
 Factors in the macroeconomy show signs of a banking crisis. However,
assessing the anti-crisis ability of banks today, the reforms of the banking crisis in
2008-2009 have helped the global banking systems to operate better. According to
The Economist, after the global financial crisis a decade ago, when governments
reformed their financial systems, the banking network became more secure and
resilient enough to overcome shocks. as bad as the crisis over 10 years ago. The US
Federal Reserve (FED) has just announced the results of an annual assessment for
US banks, which includes comparing the banks' reserve money with the damage that
banks may have to deal with. face in case of economic recession. Accordingly,
through the waves of crisis, today the US banking system has become truly more
secure. Last time, "Covid-19 storm" passed through most of the global economies
and immediately caused a wave of crisis for economic sectors such as tourism,
aviation ..., but up to this point, the banking system in the world basically still stood
up to the shock mentioned above. However, once the pandemic lasts or the second
wave breaks out this year, this will be a huge challenge for the financial sector in
general and the global banking system in particular. Thus, macroeconomic factors
have shown signs of a banking crisis, but it is not possible to draw a firm conclusion
about the macroeconomic factor that led to the banking crisis during the period.
disease point COVID-19.

4.4 CONCLUSION
The most obvious cause of an economic crisis often comes from a great
imbalance of economic resources with each other. As a result, an economy after a
period of hot developing will lead to an imbalance.
In this case, the research considered three factor groups of a common
financial crisis. Both black swan theory and banking factors did not yet confirm this
pandemic will be a new global financial crisis while macroeconomic factors can not
draw a clear conclusion.
 Normally, some factors trigger a crisis including banking system defaults,
government defaults, monetary policy and fiscal policy or even production
stagnation. Intense and timely intervention by governments and central banks to
world economies had mitigated the negative effects of social distancing and
economic closing policies. Many financial bailout packages pumped into the
economy had also made most stock markets strongly rebound after a short period of
plunge from July to August 2020 and showed the positive results. In many markets
The recovery level of stock indices close to pre-crisis levels.
 CHAPTER FIVE: CONCLUSION

5.1 INTRODUCTION
This chapter has the purpose of summarizing all the dissertation about its
findings, recommendations as well as limitations. There are five main parts in this
conclusion chapter which are introduction, summary findings, policy
recommendation, limitation of dissertation and suggestion for further research.
First, the parts of the introduction will describe the purpose of chapter 5. In
addition, this introduction part will cover the main content of each section in this
chapter, what issues the sections will deal with. The second part of this chapter will
sum up all the findings of the dissertation from analysis. The third part will give some
recommendations about policy to businesses in the banking industry. The fourth part
is indicating the dissertation’s limitation and the last part is about suggestions for
further research in this field to be more completed.

5.2 SUMMARY FINDINGS

The thesis aims to describe the short and long term effects and devastation of the
epidemic on the global economy and prospects for the recovery of the international
banking market in general, and the development opportunities from that recovery.
Besides, the thesis also mentions some recommendations and suggestions for
development of the banking industry. Qualitative methodology was used in this study
to analyze the international financial system through collecting the second data in the
past and three main aspects include “The Back Swan”, “Macroeconomic” and “Risk
Model” applied to analyze.
There are three main findings in this thesis includes:

First, through The Bacl Swan analysis, the author saw that pandemic COVID
19 is not really a black swan in the world. The effects of the pandemic on the stability
of the global banking system are almost short-term.

Second, compared with the present signs of liquidity - which plays an

important role in financial markets and major causes of this market crisis - it is
impossible to conclude that there has been an ongoing crisis but they need to take
the necessary precautions to deal with crises.
 Last but not least, factors in the macroeconomy show signs of a banking
crisis. However, assessing the anti-crisis ability of banks today, the reforms of the
banking crisis in 2008-2009 have helped the global banking systems to operate
better.

5.3 POLICY RECOMMENDATIONS

During the COVID-19 period, it was not possible to conclude with certainty
that the bank was in crisis. However, it can be realized that the liquidity of a bank is
at stake.There are too many lessons from the financial crisis of 2008. However,
based on what is outlined below are some proposed policies. The leverage in
accounting books should be given priority. The immediate priorities are to finance the
bank's own portfolios and manage the income impact from the recent emergency
rate cuts. The liquidity and equity effects of customer and partner support decisions
also need to be carefully considered. Furthermore, banks use capital and liquidity
buffers but expect them to strictly handle the sources and uses of cash and collateral
with clear information about the disparities. what has been previously reported to
regulatory agencies (PWC, 2020).

5.4 LIMITATIONS OF THIS DISSERTATION

The main objective of this research is to assess whether there will be an
immediate financial crisis that has stemmed from the COVID 19 pandemic. At the
time the research conducted, the economic recession is occurring all over the world
and there is the first recession from a pandemic that previously, it was hard to find a
reasonable forecast model for this situation.
The research evaluates the likelihood of a financial crisis flare-up from three
main groups of factors including: black swan, macroeconomic factors and banking
factors. However, qualitative research still contains many issues of concern.
- Strength: this method is very suitable to research behaviour and event
occurrence; especially, this research conducted analyzing COVID 19
disaster impacts to the global banking system. Data came in the form
of observation and description. Focusing on the particular than the
generalization.
 - Weakness: based on too many personal interpretations leading the
accuracies and objectives of the research are dependent to the
researcher.
- Opportunity: the existences of theories and hypotheses are not
necessary. The nature of this method is explorator.
- Threats: Data collecting based on the researcher; the verification
measurement was not built from measuring of validity.

5.5 SUGGESTIONS FOR FURTHER RESEARCH

This study has a few points that are used according to the sensory factor, so it has
not been evaluated accurately and objectively. However, based on the results of this
research, some suggestions are stated below to evaluate the topic objectively:
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