COVID-19: The Unseen Collateral Impacts

By Sunita Ahuja

The illustrations in this book are created by “Team Educohack”.

COVID-19: The Unseen Collateral Impacts delves into the profound economic and personal upheavals caused by the pandemic. This book examines how COVID-19 reshaped the world's fundamental structures, affecting health, IT, education, markets, and more. The pandemic has set back global development by years, altering our concept of normalcy.

We explore the extensive financial and personal damage caused by the virus, highlighting the lessons learned and the strategies employed globally to overcome these challenges. This book is a comprehensive account of the pandemic's collateral damage, providing insights into the resilience and unity required to navigate such crises.

As we transition to a post-pandemic world, this book underscores that although recovery may take time, humanity will emerge stronger. COVID-19: The Unseen Collateral Impacts is an essential read for understanding the pandemic's far-reaching effects and the path to global rehabilitation.

• Language: English
• Publisher: Educohack Press
• Release date: Jan 3, 2025
• ISBN: 9789361521706

Book preview

COVID-19

The Unseen Collateral Impacts

COVID-19

The Unseen Collateral Impacts

Sunita Ahuja

COVID-19: The Unseen Collateral Impacts

Sunita Ahuja

ISBN - 9789361521706

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Preface

Migration is one of the most significant phenomena of the world’s contemporary politics. Almost half of the population is a part of the migration. Migrants are low-paid jobs, and it is significantly affected by the outbreak of Covid-19 as migrants play a very important role in response to the virus by working in the different sectors.

From Starting of march, emigrants from almost 20 countries accounted for the highest number of Covid-19 cases, 37% of cases worldwide. Afterward, immigrants also accounted for 3.7 % of the population of 14 of the 20 countries. These all cases, when compared, come in the over-represented scenario of several countries.

All the increasing restrictions have also impacted the mobility of migrants snd their role in humanitarian society. Migration flows of many countries got measured by the new permits issues, where it fell by 46% in the first half of 2020. Thus, such a drop in migration inflows can affect the demographic effects of many countries dependent on the migration population growth.

This book attempts to share information related to migration and global justice in the current situation. It also deals with the policies and other factors related to the present scenario of migrants. Consequently, it shares information related to their growth and development.

Happy Reading!

Content

01. COVID-19

1.1 Understanding the Virus 1

1.2 Global Impact of Covid-19 5

1.3 The Industry Gender Gap 32

1.4 Summary 41

1.5 Exercise 41

02. Global Migration

2.1 Labor Migration of the World 45

2.3 Socioeconomic Impacts of Covid-19 on

2.4 Health being the Primary Concern 63

2.5 Covid-19 and People on Move 64

2.6 Summary 68

2.6 Exercise 69

03. Global Mobility

3.1 Different Phases of Mobility 71

3.2 Problems Faced by Travelers and Migrants 78

3.3 Policies and Development 88

3.4 Summary 100

3.5 Exercise 101

04. Migration and Development

4.1 Impact of the Virus on Internal Migrants 103

4.2 Regional Trend in Remittance Flow 107

4.3 Forecasting Remittance and Foreign Direct

4.4 Summary 119

4.5 Exercise 120

05. A Shift and Changes in Migration

5.1 Regional and Vulnerable Group 122

5.2 Migration Data 126

5.3 Trafficking taking Place 127

5.4 Smuggling of Migrants 141

5.5 Illegal Push able by the U.S of People

5.6 Summary 155

5.7 Exercise 156

06. Psychological Condition taking Place

6.1 Mental Health taking Place among Migrants 158

6.2 Asylum Seekers 163

6.3 World Migration Report 166

6.4 Summary 170

6.5 Exercise 170

07. Pandemic and Global Justice

7.1 Covid-19 and Global Justice 172

7.2 The Global Justice Gap 176

7.3 Proper Access to the Data Justice 184

7.4 Summary 197

7.5 Exercise 198

08. The Human Rights of Migrants

8.1 Major Challenges 199

8.2 Protection of Migrants 221

8.3 The Role of United Nations on the Human

8.4 Summary 235

8.5 Exercise 235

09. Migration and the Worldwide Development

9.1 Migration and Citizenship 237

9.2 International Migration Policies 244

9.3 The Protection Rights for Migrants 253

9.4 Summary 259

9.5 Exercise 260

Glossary 262

Index266

Chapter 1. COVID-19

Abstract

As with the other diseases, there are a lot of myths and incomplete information and knowledge regarding the Novel Corona virus, as it is a new disease. People need to know about it in whole detail. The virus also has a very bad impact all over the globe, which has also been a growing concern worldwide. This chapter is all about it. Various impacts like the economic, finance and employment have also been discussed briefly. Along with that, the chapter also talks about the downfall of education. Other than that, various inequalities and gaps are also taking place where the industry gender gap is also added in this first chapter of the book.

1.1 Understanding the Virus

The Novel Corona virus (CoV) is a new strain of the Corona virus. The disease was first identified in Wuhan, China; it was named Corona virus Disease 2019 (COVID-19). Here, ‘CO’ stands for Corona, ‘VI’ for Virus, and ‘D’ for the Disease itself. Thus, the virus is also referred to as the 2019 Novel Corona virus or 2019-nCoV. The 2019- nCoV comes with the same family and is also a part of viruses that cause Severe Acute Respiratory Syndrome (SARS). The World Health Organization (WHO) has also declared COVID-19 to be a pandemic once they indicate that the virus is way too much deadlier.

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Fig 1.1: Timeline of Events Since the First Report of Covid-19

Now, the question arises, what are the symptoms of COVID-19, and how does the virus spread? So, the symptoms can include fever, dry cough, a runny nose, fatigue, and difficulty in breathing. Some may also display very mild symptoms or no symptoms at all. In more severe cases, an infection can also cause pneumonia, grievous illness, and even death. Older people, especially with underlying medical problems, stand at a higher risk of developing a serious illness. The symptoms of COVID-19 are also similar to those of the flu (influenza) or that of the common cold. This is why testing is suggested to confirm whether someone has COVID-19 or not. Like other Corona viruses, the Novel Corona virus can be transmitted through direct contact with the respiratory droplets of an infected person and other touching surfaces contaminated with the virus.

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Fig 1.2: Understanding the Symptoms

It’s also very important to remember that the key preventive measures for Corona virus-linked diseases are the same. Frequent hand-washing and respiratory hygiene should become a priority of all the individuals residing on the globe. The COVID-19 virus may also survive on surfaces for several hours, but simple disinfectants can kill it. In brief, to avoid the risk of transmission, people should:

•Wash their hands frequently by using an alcohol-based hand rub or soap and water.

•Cover their mouth and nose when coughing or sneezing.

•Avoid close contact with anyone who has a fever and cough or any kind of similar symptoms.

•Seek medical care early if someone has fever, cough, and difficulty in breathing.

•Share previous travel history with the healthcare provider.

There is no reason to believe that the cold weather can kill the Novel Corona virus and other linked diseases. The normal human body temperature remains around 36.5°C to 37°C, regardless of external temperature or weather. The most effective way to protect against the Novel Corona virus is by frequently cleaning the hands with an alcohol-based hand rub or washing them with soap and water. Taking a hot bath will not prevent anyone from catching COVID-19. The normal body temperature remains around 36.5°C to 37°C, regardless of the temperature of the bath or shower. Actually, taking a hot bath with extremely hot water can also be harmful, as it can burn. The best way to acquire protection against COVID-19 is by frequently cleaning the hands. This can eliminate viruses that remain in the hands and thus avoid all kinds of infections when anyone touches their eyes, mouth, and nose. Even though the Novel Corona virus can stay on the surfaces for a few hours or up to several days (depending on the type of surface), the virus will rarely persist on a surface after being transported over long distances and exposed to different weather conditions and temperatures. So, it’s always a good choice to use a disinfectant to clean the surface. After touching it, cleaning hands with an alcohol-based hand rub or washing them with soap and water is a must to do.

To date, there has been no information or evidence that suggests the Novel Coronavirus could be transmitted by mosquitoes. It is a respiratory virus that spreads primarily through droplets generated when an infected person coughs or sneezes or through the droplets of saliva or discharge from the nose. Cleaning hands from time to time is the only solution to deal with it. Once hands get clean, dry them thoroughly by using paper towels or a warm air-dryer. Thermal scanners are also considered an effective measure in detecting people who have developed a fever (those with higher body temperature than the normal) because of the 2019-nCoV infection. However, it cannot detect infected people but does not yet have an elevated temperature. This happens because it takes between two and ten days for infected people to become sick and develop a fever.

Many people believe that spraying alcohol or chlorine all over the body will kill the viruses that have already entered the body, but this is not true. Spraying such substances can be harmful to clothes and mucous membranes like the eyes and mouth. Therefore, it’s good to keep it as a surface disinfectant. However, at present, there is no such evidence that companion animals/pets such as dogs or cats can be infected with the Novel Coronavirus. However, it is always a good idea to wash hands with soap and water after contact with pets. This can protect one from the various common bacteria such as E. coli and Salmonella that can pass between pets and humans. Now, People of all ages can get infected by the Novel Coronavirus. Older people and people with pre-existing medical conditions (such as asthma, diabetes, heart disease) appear more likely to become ill after contracting the virus. Therefore, WHO advises people of all ages to protect themselves from the virus by following good hand hygiene and good respiratory hygiene.

Other than that, the 2019-nCoV is a virus and, antibiotics should not be used as a means of prevention or treatment. However, if anyone is hospitalized for the 2019-nCoV, they may receive antibiotics because bacterial co-infection is possible. However, to date, there is no specific medicine recommended to prevent or treat the Novel Coronavirus, where vaccine remains the only hope. However, those infected with the virus should receive appropriate care to relieve and treat the symptoms, and those with severe illness should receive optimized supportive care. Some specific treatments are also under investigation and will be tested through clinical trials. WHO is also working with a range of partners to accelerate research and development efforts.

Reportage on the spread of the Novel Coronavirus can also be completely factual. As with reporting of any sort, accuracy should be given prime importance. All the journalists have to exercise sensitivity while reporting about ongoing developments and mentioning any specific cases. They have to ensure fair and impartial reporting while respecting the privacy and sentiments of the individuals, particularly those who have lost their loved ones or are facing traumas like unemployment, financial insecurity, displacement, or neglect.

Steps for the protection from COVID-19 is to take care of the health and protect others by doing the following:

1. Keep clean hands often

•Wash hands with soap and water for at least 20 seconds, especially if coming from any public place or after blowing nose, coughing, or sneezing.

•If soap and water are not readily available, then a hand sanitizer can be used that contains at least 60 percent of alcohol. Cover all surfaces of hands and rub them together until they feel properly dry.

•Avoid touching eyes, nose, and mouth with unwashed hands.

2. Avoid all kinds of close contact

•Avoid close contact with the people who are sick

•Maintain one-hand distance if COVID-19 is spreading in one’s community. This is especially important for the people who are at higher risk of getting very sick.

•Maintain at least a one-meter that is (3-foot) distance from anyone who is coughing or sneezing.

•Avoid all kinds of physical contact while greeting people. Stay at home if any kind of there appears ought and sneezing except only in need to access medical care

•If any symptoms of cough, fever, tiredness, and difficulty in breathing appear, immediately contact a doctor.

3. Cover coughs and sneezes

•Cover mouth and nose with a tissue while coughing or sneezing or use the inside of the elbow.

•Throw used tissues in the trash right away after using.

•Immediately wash hands with soap and water for at least 20 seconds, if soap and water are not available, clean hands using a hand sanitizer containing at least 60% alcohol.

4. Wear a facemask if there is sickness or when around other people (for example, sharing a room or vehicle) before entering a healthcare provider’s office.

•Keep cleaning and frequently disinfecting as, for example, the touched surfaces daily, including tables, doorknobs, light switches, countertops, handles, desks, toilets, faucets, sinks, and micro, recorders, computers, smartphones, and telephones.

•If surfaces are dirty, clean them using detergent or soap and water before disinfection.

1.2 Global Impact of Covid-19

The COVID-19 pandemic has led to a dramatic loss of entire human life worldwide and presents an unprecedented challenge to all the public health, food systems, and the world of work. Furthermore, the economic and social disruption caused by the pandemic is also very devastating where tens of millions of people are at risk of falling into extreme poverty, while the other number of undernourished people that is currently estimated at nearly 690 million, could get increase by up to 132 million by the end of the year.

There are millions of enterprises facing an existential threat. Nearly half of the world’s 3.3 billion global workforces are also at risk of losing their livelihoods. The informal economy workers are also particularly vulnerable because most lack social protection with access to quality health care, and others lose access to all kinds of productive assets, without the means to earn an income during the lockdowns where many of them are unable to feed themselves and their families as well. For most, no income means no food, or, at best, less food, along with the less nutritious food.

The pandemic has also been affecting the entire food system that has laid bare its fragility. Border closures like trade restrictions and confinement measures have also been preventing the farmers from accessing markets, including for buying all kinds of inputs and selling the produce, and other agricultural workers from harvesting the crops, thus disrupting domestic and international food supply chains and reducing access to healthy, safe and diverse diets. The pandemic has also decimated jobs and placed millions of livelihoods at risk. As breadwinners lose their jobs, fall ill, and die, the food security along with the nutrition of millions of women and men that are under threat, with all those in low-income countries, particularly the most coming from the marginalized populations, which include small-scale farmers and other indigenous peoples who got hardest hit by the virus.

Millions of agricultural workers, including all waged and self-employed while feeding the world, regularly face high levels of working poverty, malnutrition, and poor health. In addition, they are suffering from a lack of safety and labor protection and other types of abuse. With low and irregular incomes and lack of social support, many of them are also spurred to continue working, often in unsafe conditions, by exposing themselves and their families to all kinds of additional risks. Further, when experiencing income losses, they may encounter negative coping strategies, such as distress sale of assets, predatory loans, or child labor. Migrant agricultural workers are particularly vulnerable because they face huge risks in their transport, working, and living conditions along with the struggle to access support measures that get put in place by governments. Therefore, guaranteeing the safety and health of all agri-food workers from primary producers to those involved in the food processing, transport, and retail, including street food vendors, as well as better incomes and protection, will be very much critical to saving lives and protecting the public health, people’s livelihoods, and food security.

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Fig 1.3: Coronavirus Impact on Global GDP Growth

Adhering to workplace safety and health practices and ensuring access to decent work and the protection of labor rights in all industries will also become crucial in addressing the human dimension of the crisis. Here, immediate and purposeful action to save lives and livelihoods should include extending social protection towards universal health coverage and income support for those belonging to the most affected. These include workers in the informal economy and all the poorly protected and low-paid jobs, including youth, older workers, and migrants. Particular attention must also be paid to women, who are over-represented in low-paid jobs and their care roles. Different forms of support are key factors, including cash transfers, child allowances, and providing healthy school meals, shelter and food relief initiatives, support for employment retention and recovery, and financial relief for businesses, including the micro, small and medium-sized enterprises. In designing and implementing all such measures, governments must work closely with employers and workers.

Countries dealing with existing humanitarian crises or emergencies are particularly exposed to the effects of COVID-19. Responding swiftly to the pandemic while ensuring that humanitarian and recovery assistance reaches those most in need is critical. Now is the time for global solidarity and support, especially with the most vulnerable in our societies, particularly in the emerging and the developing world. Only together can the world can overcome the intertwined health and other social and economic impacts of the pandemic and prevent its escalation into a protracted humanitarian and food security catastrophe, with all the potential loss of already achieved development gains.

We must also recognize this opportunity to build back better, as noted in the Policy Brief issued by the United Nations Secretary-General. From the commitment to pooling the expertise and experience to support countries in their crisis response measures and efforts to achieve their Sustainable Development Goals. A developed long-term sustainable strategy to address the challenges facing the health and agri-food sectors is required. Priority should be given to the underlying food security and malnutrition challenges, tackling rural poverty, particularly through more and better jobs in the rural economy, extending social protection to all, facilitating safe migration pathways, and promoting the formalization of the informal economy. There has been many downfall and impact on the globe that is individually discussed below:-

Poverty:

Over the past 12 months, the pandemic has harmed the poor and the most vulnerable badly, threatening to push millions more into poverty. This year, after decades of progress in reducing the number of people living on less than $1.90/day, COVID-19 is assuring the first reversal in the fight against extreme poverty in a generation to come. In a worst-case scenario, the figure could reach 115 million. The World Bank Group forecasts that it is the largest share of the new poor taking place to be in South Asia, with Sub-Saharan Africa close behind. According to the latest Poverty and Shared Prosperity report, "many of the new poor are very much likely to be engaged in all kinds of informal services, construction, and manufacturing.

Economic Downturn:

Those restrictions enacted to control the spread of the virus and thus alleviate pressure on the strained and vulnerable health systems have also had an enormous impact on economic growth. Where COVID-19 has triggered a global crisis like no other in a global health crisis leading to the deepest global recession since the Second World War, it forecast that the global economy and per capita incomes would also shrink this year, pushing millions into extreme poverty.

Increasing Debt Burden:

This economic fallout also hinders countries’ ability to respond effectively to the pandemic’s health and economic effects. Even before the spread of COVID-19, almost half of all the low-income countries were already in debt distress or at a high risk of having it. Now, this virus has left them with little fiscal room to help the poor and vulnerable who were hit hardest. For this reason, in April, the World Bank and IMF called for the suspension of the debt-service payments for the poorest countries so that they can allow them to focus resources on fighting the pandemic. The Debt Service Suspension Initiative (DSSI) has enabled these countries to free up billions of dollars for their COVID-19 response. According to the World Bank, Debt service and suspension is an important stopgap, but it is not full enough.

Without more action on debt, a sustainable recovery could also get stunted in many countries and host all the other development goals. As Global Economic Prospects noted, many of the emerging markets and developing economies (EMDEs) were able to implement large-scale fiscal and monetary responses during the 2007-2008 Financial Crisis. Today they are less prepared to weather a global downturn where the most vulnerable rely heavily on global trade, tourism, and remittances.

Migrants Facing Huge Problems:

Over previous decades, remittances have played an increasingly important role in alleviating poverty and sustaining growth. Just last year, these flows were on par with the foreign direct investment and official development assistance, but COVID-19 has spurred a dramatic reversal, according to all the latest forecasts finding that says remittances will decline 14% by the end of 2021, where a slightly improved outlook compared with the earliest estimates during the pandemic, should not believe the fact that these are some kind of historic declines. All regions can expect a drop, with Europe and Central Asia seeing their steepest fall. Associated with these declines, the number of international migrants will likely fall in 2020, for the first time in modern history, as new migration has slowed and return migration has got increased. These drops are cutting off a lifeline for many of the poor families in developing countries. Migrant remittances are crucial to many households around the world. As they decline, experts fear that poverty will rise enormously where that food insecurity will worsen. In addition, households risk will lose the means to afford services like healthcare.

Downturn in Business and Jobs:

The pandemic slowdown has also deeply impacted businesses and jobs. Around the world, companies, especially the micro, small, and medium enterprises (MSMEs) in the developing world, are also under an intense strain, with more than half either in arrears or likely to fall into years shortly. To understand the pressure that the COVID-19 is having on firms’ performance as well as the adjustments they have to make, the World Bank and partners have also been conducting rapid COVID-19 Business Pulse Surveys in partnership with the client governments.

All of these offer a glimmer of good news. Responses collected between May and August showed that many of these firms retained staff, hoping to keep them on the board as they rode out the downturn. More than a third of companies have also increased digital technology to adapt to the crisis. The same data warned that the firm’s sales have dropped by half amid the crisis, forcing many companies to reduce hours and wages. Most of their businesses, especially micro and small firms in low-income countries, struggle to access public support. Reduced family incomes, whether due to job loss, a stop in remittance payments, or many other COVID-19-related factors, will also continue to put human capital at risk.

High Cost of Health Crisis:

Before the crisis began, people in many developing countries paid over half a trillion dollars out-of-pocket for their health care. This costly spending caused financial hardship for more than 900 million people and had pushed nearly 90 million people into extreme poverty every year, where this dynamic almost certainly got exacerbated by the pandemics.

Education in Trouble:

Even before the pandemic, the world faced a huge learning crisis, with 53% of children from low- and middle-income countries unable to read a basic text on completing primary school. Pandemic-led school closures intensify these risks to a greater extent. Due to learning losses and other increases in dropout rates, this generation of students stands to lose an estimated $10 trillion in their earnings, or almost 10 percent of the global GDP, where many countries will be driven even further off-track to achieving their Learning. Poverty goals that are potentially increasing its levels substantially to 63 percent now are equivalent to an additional 72 million primary school-aged children. To mitigate all these losses and try to sustain learning amid the crisis, countries are also exploring options for remote learning with mixed results. In many places, a key obstacle is a lack of high-quality and affordable broadband.

Growing Gender Inequalities:

COVID-19 also poses a serious threat to other development like divides. Notably, gender gaps could get widen during and after the pandemic. This could reverse the women’s and girls’ decades-long gains in human capital, economic empowerment, and voice and agency. For example, in 1970, just two countries had laws mandating equal remuneration for the work of equal value. As the chart below shows, the situation has significantly changed in these 50 years. But even today, more than two-thirds of economies could still improve their legislation affecting women’s pay. Of course, equal pay is just one aspect of gender equality. Across multiple indicators, the pandemic is exacerbating the risks for women and threatening many hard-fought-for gains. As this crisis has unfolded, women have lost their jobs more than men because they are more likely to be employed in the sectors hardest hit by lockdowns, such as tourism and retail. Additionally, women in low- and middle-income countries are more likely to get predominantly employed in informal jobs, which often means they lack access to all kinds of social protection and other safety nets.

Seize in Sustainability:

Even as the world focuses on pandemics, climate shocks, natural disasters, and ecosystem loss have also not stopped. As governments take urgent action and lay all the foundations for their financial, economic, and social recovery, they also have a unique opportunity to create more sustainable, inclusive, and resilient economies. The Group has also steadily increased our climate financing by having committed $83 billion to climate-related investments over the last five years and exceeding the targets for each of the last three years.

1.2.1 The Economic Affect on the World

Although the outbreak’s epicenter was initially in China, with reported cases either in China or in travelers from the country, cases are now being reported in many of the other countries. While some countries have effectively treated their reported cases, it is uncertain where and when new cases will emerge. Amidst the significant public health risk COVID-19 poses to the whole world. The World Health Organization (WHO) has also declared a public health emergency of international concern to coordinate international responses to the disease. However, it is currently debated whether COVID-19 could potentially escalate to a global pandemic or not.

In a strongly connected and integrated world, the impacts of the disease beyond mortality (those who die) and morbidity (those who are unable to work for a period of time) have also become apparent since the time of an outbreak. Amidst the slowing down of the Chinese economy with the interruptions to production, the functioning of all the global supply chains has also been disrupted. Companies worldwide, irrespective of the size-dependent upon their inputs from China, have started experiencing huge contractions in their production. Transport is being limited and even restricted among countries has slowed down the global economic activities. Most importantly, some panic among consumers and firms has distorted usual consumption patterns and created market anomalies. Global financial markets have also been responsive to all kinds of changes, and global stock indices have plunged.

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Fig 1.4: The Economic Effects of Covid-19

Given a range of epidemiological assumptions, a set of filters has been made that convert the epidemiological assumptions into all the economic shocks to reduced labor supply in each country (mortality and morbidity), rising costs of doing business in each sector (including disruption of the production networks in each country, a reduction in the consumption due to shifts in the consumer preferences over each good from each country, a rise in an equity risk premier on the companies in each of the sector in each country (based on exposure to the disease), and thus increases in the country risk premier based on the exposure to the disease as well as vulnerabilities towards changing macroeconomic conditions. All the epidemiological events are limited to China, where the economic impact on China and the spillovers to other countries take place through trade, capital flows, and changes in the risk premier in the global financial markets determined by the model. The change in GDP in 2020 expressed the percentage change from the basic baseline.

A range of policy responses is very important for both the short term and the coming years. In the short term, the central banks and treasuries need to make sure that disrupted economies will continue functioning while the virus outbreak continues rapidly. In the face of real and financial stress, a critical role exists for the governments. While cutting interest rates is a possible response for all the central banks, the shock is not simply a demand management problem but a multi-faceted crisis that will definitely require monetary, fiscal, and health policy responses. Quarantining affected people and reducing large-scale social interaction is also an effective response.

The longer-term responses are even more important. Despite all the potential loss of life and the large-scale disruption to a large number of people, many governments have been reluctant to invest sufficiently in all their health care systems, let be then public health systems in all the less-developed countries where many infectious diseases are likely to get originated. Experts have also warned and are still to warn that this disease will be a threat for millions of lives, with potentially the major disruption to an integrated world economy. Therefore, Global cooperation, especially in public health and economic development, is very much needed. Hence, all major countries need to participate actively.

1.2.2 Finance in the Times of Coronavirus

The effect of the virus on the financial system very much depends on (1) how further the virus will spread across the globe and the effect it will leave on on the whole economic activity, (2) fiscal and other monetary policy reactions towards the shock, and (3) regulatory reactions to possible bank the fragility. Current economic scenarios range from a small growth dip over several affected countries to a global recession as in 2008/9. At the same time, there is much less monetary policy space today than during the Great Recession, where the bank regulatory and resolution frameworks certainly used to offer more policy options than 12 years ago. One big factor will also be whether the virus-related disruptions will be temporary or persistent ones. As important as this is for the economic damage done by the virus shock (a V-shaped dip and recovery or a deeper U-shaped recession), this will also have repercussions for all the financial system. In the case of all kinds of temporary disruption to all the supply chains or a mild demand-side shock resulting in a delay in the consumption, banks can here serve as support for the struggling firms, especially in the case of many European banking systems with close and long-running relationships between the firms and banks.

Recent research has also shown that relationship lenders can help firms during their times of recession and economic crisis based on their extensive knowledge of the firms and long-run relationships. On the other hand, a longer slowdown or even a recession will put pressure on the bank’s loan portfolios and solvency positions. Therefore, rather than the recent correction of stock markets across the globe, it will also be non-performing loans (as well as a freezing of the funding markets) that could be a direct source of the bank fragility. However, the Nonperforming loans will not show up immediately but rather will occur (in a negative to adverse scenario) later.

One starting point to assess the impact of such a negative or adverse scenario is the stress tests undertaken by the regulators across the globe, including the Single Supervisory Mechanism (SSM) and European Banking Authority (EBA) for all the largest banks in the euro area and EU. The 2018 stress test modeled a high fall of 8.3% over three years relative to all the baseline projections in its adverse scenario and concluded that even after such a shock, the average CE T ratio is still at 10.1%, though with a large variation across other banks. There might occur some quite variation in such an adverse scenario across the countries and banks, and there certainly could be bank failures, especially among the banks whose loan portfolios are concentrated in the areas most affected.

Regulatory forbearance regarding the loan classification and thus loan loss provisions would be considered the wrong response. Letting markets guess what the true financial situation of banks is rather than providing any such information that can only worsen things. While there is an ongoing academic debate on whether more transparency is a better choice, experience from the early EBA stress tests in the EU, which turned out to be too lenient, with banks that passed the test failing shortly afterward. It also suggests that pretending things are just fine, which is not conducive to creating confidence. Rather than allowing forbearance on the loan classification and thus loan provisions, regulators should instead allow the banks to eat into their capital conservation and other counter-cyclical buffers. Such loan losses would not show up that quickly, and consequential losses would not be expected before late 2020. At the same time, bank resolution frameworks might also be tested, as will the political will to let the supervisors and resolution authorities do their job.

Although, loan losses are only one source of fragility. Last October, the Hong Kong Monetary Authority ran a crisis simulation exercise with all of its major banks, including the breakout of a disease like the Coronavirus, resulting in operational challenges. The operational risks can loom large in the scenarios with widespread socio-economic disruption and better prepared central banks, regulators, and financial market participants that are more limited and can damage the financial system and the real economy. A third challenge (though related to the other previous two) would be the loss of confidence in the banks, be it by depositors (resulting in bank runs) or by the markets. Loss of access to funding markets can also easily turn into systemic distress and much earlier than nonperforming assets that will show up on the bank’s balance sheets. Swift intervention by central banks as lenders and market-makers of last resort will also be critical in such circumstances.

The ECB has all but run out of the monition in the euro area, unlike the Federal Reserve and the Bank of England, with the former having already taken action this week. While there might still be options to influence all the yield curves, large aggregate demand effects cannot be expected from such actions. Lowering already negative interest rates might further trade-off aggregate demand effects, putting further pressure on the bank’s balance sheets. On the other hand, Fiscal policy has quite some space, especially in some of the ‘frugal countries’ such as Germany, where Italy has just announced temporary tax cuts and higher health spending, with all kinds of