ABSTRACT

Bank Exposure to COVID-19 Risks: Business Loans [April 20, 2020]   [open pdf - 875KB]

From the Document: "The COVID-19 (coronavirus) pandemic has caused financial hardship across the country. If COVID-19 causes borrowers to miss loan payments, it could have negative consequences for banks. This Insight examines the exposure banks have to business loan repayments, such as commercial and industrial (C&I) loans and commercial real estate (CRE) loans. [...] 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, IN11348
Author:
Publisher:
Date:
2020-04-20
Series:
Copyright:
Public Domain
Retrieved From:
Congressional Research Service: https://crsreports.congress.gov/
Format:
pdf
Media Type:
application/pdf
URL:
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