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Taking Stock of the Financial Sector Policy Response to COVID-19 around the World

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Listed:
  • Feyen,Erik H.B.
  • Alonso Gispert,Tatiana
  • Kliatskova,Tatsiana
  • Mare,Davide Salvatore
Abstract
This paper introduces a new global database and a policy classification framework that records the financial sector policy response to the COVID-19 pandemic across 154 jurisdictions. It documents that authorities around the world have taken a diverse array of measures to mitigate financial distress in markets and for borrowers, and to support the provision of critical financial services to the real economy. Measures that focus on the banking sector constitute the majority of policies taken and aim to take advantage of the flexibility embedded in the international standards. However, emerging markets and developing economies tend to rely more on prudential measures that go beyond this embedded flexibility compared with advanced economies, which may reduce bank balance sheet transparency and increase risks. Using Cox proportional hazards and Poisson regressions, the paper takes initial steps to analyze the determinants of policy makers’ responsiveness and activity in emerging markets and developing economies, respectively. The results indicate that policy makers have typically been significantly more responsive and have taken more policy measures in emerging markets and developing economies that are richer and more populous. Countries with higher private debt levels tend to respond earlier with banking sector and liquidity and funding measures. The spread of COVID-19, macro-financial fundamentals, and fiscal and containment policies appear to play a limited role. In a substantially smaller sample, the paper explores the role of banking characteristics and finds that emerging markets and developing economies with higher private credit levels and that have adopted Basel III features have taken fewer policy measures. Future work is necessary for better understanding the country determinants of the policy response as well as the effectiveness and potential unintended consequences of the measures.

Suggested Citation

  • Feyen,Erik H.B. & Alonso Gispert,Tatiana & Kliatskova,Tatsiana & Mare,Davide Salvatore, 2020. "Taking Stock of the Financial Sector Policy Response to COVID-19 around the World," Policy Research Working Paper Series 9497, The World Bank.
  • Handle: RePEc:wbk:wbrwps:9497
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    File URL: http://documents.worldbank.org/curated/en/143061607958551050/pdf/Taking-Stock-of-the-Financial-Sector-Policy-Response-to-COVID-19-around-the-World.pdf
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    References listed on IDEAS

    as
    1. Altavilla, Carlo & Barbiero, Francesca & Boucinha, Miguel & Burlon, Lorenzo, 2023. "The Great Lockdown: Pandemic response policies and bank lending conditions," European Economic Review, Elsevier, vol. 156(C).
    2. Lei Li & Philip E. Strahan & Song Zhang, 2020. "Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis," NBER Working Papers 27256, National Bureau of Economic Research, Inc.
    3. Katharina Bergant & Thore Kockerols, 2018. "Forbearance Patterns in the Post-Crisis Period," Working Paper 2018/11, Norges Bank.
    4. Lei Li & Philip E Strahan & Song Zhang, 2020. "Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 472-500.
    5. Feyen,Erik H.B. & Dancausa,Fernando & O'Reilly Gurhy,Bryan & Nie,Owen, 2020. "COVID-19 and EMDE Corporate Balance Sheet Vulnerabilities : A Simple Stress-Test Approach," Policy Research Working Paper Series 9324, The World Bank.
    6. Efraim Benmelech & Nitzan Tzur-Ilan, 2020. "The Determinants of Fiscal and Monetary Policies During the Covid-19 Crisis," NBER Working Papers 27461, National Bureau of Economic Research, Inc.
    7. International Monetary Fund, 2020. "COVID-19: The Regulatory and Supervisory Implications for the Banking Sector: A Joint IMF-World Bank Staff Position Note," IMF Staff Position Notes 2020/001, International Monetary Fund.
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    Cited by:

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    3. Li, Xiang, 2022. "The role of state-owned banks in crises: Evidence from German banks during COVID-19," IWH Discussion Papers 6/2022, Halle Institute for Economic Research (IWH), revised 2022.

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    Keywords

    Financial Sector Policy; Health Care Services Industry; Public Health Promotion;
    All these keywords.

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