From the Document: "Banks have been harder hit than most sectors since the unsettlingly rapid global spread of Covid-19 [coronavirus disease 2019] sent financial markets into a tailspin. This Bulletin examines markets' assessment of banks' performance thus far. The focus is on stock prices, credit default swap (CDS) and bond spreads, and credit ratings. The price dynamics have been similar across equity and fixed income markets. Following generally contained declines during the early stages of the crisis, prices fell dramatically after 5 March, in a manner comparable to the immediate post-Lehman bankruptcy period. A stabilisation and partial recovery set in shortly after the middle of the month, on the back of unprecedented policy measures taken by central banks and other authorities. The policy measures also marked a turning point in terms of the extent to which investors were differentiating across banks according to their pre-pandemic characteristics. During the initial period (from mid-February to mid-March), the sell-off was broad and quite indiscriminate, even though Chinese banks remained relatively unscathed and the riskiest banks experienced the largest increase in CDS spreads. The differentiation became more pronounced during the stabilisation phase (from mid-March onwards), when profitability and balance sheet strength - as reflected in capitalisation, stable funding and credit ratings - became particularly good indicators of developments in bank stock prices, CDS spreads and rating outlooks. The importance that markets attribute to strong balance sheets is likely to increase in an environment that sees a further weakening of borrowers' financial health."
BIS Bulletin No. 12; Bank for International Settlements Bulletin No. 12
2020 Bank for International Settlements
Bank for International Settlements: https://www.bis.org/