ABSTRACT

Bank Exposure to COVID-19 Risks: Mortgages and Consumer Loans [April 14, 2020]   [open pdf - 864KB]

From the Document: "The COVID-19 (coronavirus) pandemic has caused financial hardship across the country. If COVID-19 causes borrowers to miss payments, it could have negative consequences for banks. This Insight examines the exposure banks have to household repayments, such as mortgages, credit cards, auto loans, and other consumer debt. The main business of a bank is to make loans and buy securities using funding it raises by taking deposits. A bank earns money largely through borrowers making payment on those loans and securities issuers making payment on securities, along with charging fees for certain services. In addition to accepting deposits, a bank also raises funding by issuing debt (such as bonds) and capital (such as stock). Unlike deposits and debt that place specific payment obligations on a bank, payments on capital can generally be reduced, delayed, or cancelled and the value of capital can be written down. Thus, if incoming payments unexpectedly stop, capital allows a bank to withstand losses to a point. However, if a bank exhausts its capital reserves, it could face financial distress and potentially fail."

Report Number:
CRS Insight, IN11336
Author:
Publisher:
Date:
2020-04-14
Series:
Copyright:
Public Domain
Retrieved From:
Congressional Research Service: https://crsreports.congress.gov/
Format:
pdf
Media Type:
application/pdf
URL:
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