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SKANS School of Accountancy (Tariq Block Campus) *

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Finance

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Nov 24, 2024

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FIN674 Managing Financial Institution Week 4:Term Paper Shirley Lababit 14/12/2023 1
Introduction: The COVID-19 pandemic has triggered an unparalleled global crisis, profoundly affecting financial institutions and redefining the role of the banking sector in ensuring financial stability and economic growth. This report aims to provide a thorough examination of the disruptive macroeconomic environment that has ensued, exploring its implications on financial institutions. We will delve into the qualitative research conducted, analyzing current and projected industry trends, economic volatility, disruption of the global supply chain, and the profound impact on liquidity, solvency, and risk management within the banking sector. Banking Sector and Financial Stability: Financial institutions, particularly banks, have been fundamental to the stability of economic systems. They provide essential services such as deposit-taking, lending, and facilitating payments, creating a foundation for economic activities. The confidence in the stability of these institutions is paramount for maintaining trust in the financial system. (Mirzaei et al., 2013) Banks play a crucial role in ensuring the smooth functioning of payment systems, supporting businesses in their daily operations, and extending credit to fuel economic expansion. The ability of financial institutions to manage risks, maintain adequate capital reserves, and respond to changing economic conditions has historically contributed to financial stability. Disruptive Macroeconomic Environment: The pandemic has triggered a cascade of disruptions in the macroeconomic environment. Financial institutions have been grappling with challenges such as increased credit risk, interest rate fluctuations, and the acceleration of digital transformation. These disruptions have far- 2
reaching consequences that extend beyond the balance sheets of banks. (Del Rio-Chanona et al., 2020) Qualitative Research: Analysis of Current and Projected Industry Trends: The banking sector is undergoing rapid transformations, influenced by shifting consumer behaviors and technological advancements. Our research provides a detailed analysis of current trends, such as the surge in digital banking adoption, and projects future trends, including a continued focus on sustainability and resilience. Economic Volatility and Implications for the Financial Industry: Economic volatility has become a defining feature of the pandemic era. Our research explores the nuanced implications of this volatility for financial institutions, examining how they navigate asset valuations, manage loan portfolios, and adapt to the ever-changing economic landscape. (Ullah et al., 2023) Disruption of the Global Supply Chain and Credit Market: The global supply chain disruption has rippled into the credit market, affecting both corporate and consumer lending. Our qualitative analysis investigates how financial institutions are responding to these challenges, reassessing risk profiles, and ensuring the flow of credit to support economic recovery. Andriantomanga (2023) Impact of the Pandemic on Banking Sector Liquidity, Solvency, and Risk Management: The pandemic has posed unique challenges to the liquidity, solvency, and risk management practices of financial institutions. Ellyatt (2021) 3
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Our research delves into the changes in capital adequacy, adjustments to risk appetites, and strategies employed by banks to navigate these uncertain times. Conclusions: Best Practices for Strengthening Risk Management and Compliance: To enhance resilience, financial institutions must embrace best practices for risk management and compliance. This includes leveraging advanced technologies for robust risk assessments, refining stress testing methodologies, and fostering a risk-aware organizational culture that permeates every facet of their operations. Key Lessons about Business Continuity and Organizational Management: The pandemic has illuminated the critical importance of robust business continuity plans and agile organizational structures. Institutions must learn from these lessons, investing in adaptive management strategies that ensure continued operations in the face of unforeseen disruptions. The Need for Greater Collaboration and Innovation: Collaboration and innovation are paramount for the future of financial institutions. This report concludes by emphasizing the imperative for increased collaboration within the industry, encouraging information sharing, and fostering innovation. Strategic partnerships and the embrace of innovative technologies become central to navigating challenges and driving sustainable growth in the post-pandemic era. In closing, this report offers a comprehensive examination of the profound impact of COVID-19 on financial institutions. By exploring disruptive trends, economic volatility, and strategic 4
responses, it provides a roadmap for best practices, key lessons, and the imperative for collaboration and innovation as financial institutions chart a course towards a more resilient future. References: Darjana, D., Wiryono, S. K., & Koesrindartoto, D. P. (2022). The COVID-19 pandemic impact on banking sector. Asian Economics Letters, 3(3). https://doi.org/10.46557/001c.29955 Human verification. (n.d.). https://www.bnm.gov.my/the-importance-of-financial-stability 2024 banking and capital markets outlook. (2023, October 25). Deloitte Insights. https://www2.deloitte.com/xe/en/insights/industry/financial-services/financial-services-industry- outlooks/banking-industry-outlook.html Huang, J., Kombate, B., Li, Y., Kouadio, K. R., & Xie, P. (2023). Effective risk management in the shadow of COVID-19 pandemic: The evidence of Indonesian listed corporations. Heliyon, 9(5), e15744. https://doi.org/10.1016/j.heliyon.2023.e15744 Meola, A., & Meola, A. (2023, July 21). The digital trends disrupting the banking industry in 2023. Insider Intelligence. https://www.insiderintelligence.com/insights/banking-industry-trends/ Karim, M. R., Shetu, S. A., & Sultana, R. (2021). COVID-19, liquidity and financial health: empirical evidence from South Asian economy. Asian Journal of Economics and Banking, 5(3), 307–323. https://doi.org/10.1108/ajeb-03-2021-0033 Ullah, S., Khan, S., Hashmi, N. I., & Alam, M. S. (2023). COVID-19 pandemic and financial market volatility: A quantile regression approach. Heliyon, 9(10), e21131. https://doi.org/10.1016/j.heliyon.2023.e21131 5
Mirzaei, A., Moore, T., & Liu, G. (2013). Does market structure matter on banks’ profitability and stability? Emerging vs. advanced economies. Journal of Banking and Finance, 37(8), 2920– 2937. https://doi.org/10.1016/j.jbankfin.2013.04.031 Del Rio-Chanona, R. M., Mealy, P., Pichler, A., Lafond, F., & Farmer, D. (2020). Supply and demand shocks in the COVID-19 pandemic: an industry and occupation perspective. Oxford Review of Economic Policy, 36(Supplement_1), S94–S137. https://doi.org/10.1093/oxrep/graa033 6
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