(June 12): Smoothing the economic catastrophe generated by Covid-19 has led to intense discussions on whether the banking sector is an effective channel to inject financial oxygen into the economy.
Banks know how to provide needed credit to companies and individuals, and governments contact bankers daily. Societe Generale CEO Frederic Oudéa, echoing former Goldman Sachs boss Lloyd Blankfein’s “we are doing God’s work” statement, proudly affirmed: “We are the doctors of the economy.” It is amazing that a tiny vicious virus has unexpectedly offered banks the opportunity to regain a reputation lost in the Global Financial Crisis (GFC).
Two questions frame the general debate: Is it appropriate to shield banks and provide them with financial immunity (which all dream about today); and should banks be prevented from paying dividends and making share repurchases during this extraordinary time? We aim to provide answers to both, informed by scientific evidence, of course.