Question

In: Economics

a) Taking the perspective of banks, explain the reasons why the lockdown Recession (Covid-19 crisis) is...

a) Taking the perspective of banks, explain the reasons why the lockdown Recession (Covid-19 crisis) is different to the Great Recession (2008-09 crisis)? Discuss by presenting five differenes

b) What is the role that banks can play in supporting the economy and eventual recovery. Discuss by presenting five policies that banks can implement to help economic operators

c) What will be the lessons that businesses will learn from the Lockdown Recession? What are the suggested ways business might change in their day-to-day operations, especially when they interact with their customers? Explain.

Solutions

Expert Solution

1)The present crisis differs from the 2008-09 crisis in the following ways

* current situation is an exogenous shock where as 2008-09 was an endogenous shock which was a result of in-built vulnerabilities of the banking sector

*Current situation affected the real sector first then slowly spread to financial sector.2008-09 recession affected the financial system price and housing prices collapsed

* This crisis may be over quickly by the end of 2020.lt will end in a short duration compared to the 2008-09 crisis.

*In the case of ,2008-09 survival of banks were threatened.Even giants layman brothers faced doom.current situation isn't that alarming bacause of the implementation of new Capital adequacy norms and all.

* The recovery process from 2008-09 was very slow and gradual due persistent strains.But now,once the quarantine is lifted things may get back on track fast.

2)Banks can play a huge role in supporting the economy now.

* Cut the interest rates on loans

*If a person losses job due to the crisis,his loan installments could be deffered for some months

*Give extensions to loan repayment without degrading of the asset.

*Accelerate the adoption of digital technology so that customers can avail services from home .

*Provide financial-fitness tools and helplines.

3) Lessons learned by the businesses include

*Supply chain disruptions can happen suddenly without a warning.

* Be prepared for a demand shock too and the businesses must be prepared to meet that.

* Stay focused on hygiene and health.Take care of the health of Employees and ensure hygiene working conditions.

* Digital access must be seen as utility

The day-to-day operations and interactions of business firms can be changed in the following ways

*There must be a reinvention of the business model.

*Expand to new markets.setting up an online store is not costlier and customers will be able to buy from home.The store also can be opened for 24 hours.

*Invest more on customer satisfaction so that so that customers will be there for the economy and there is even a possibility of them bailing out the company if an economic crises strikes again.

*Provide safety and reliability to customers as well as Employees


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