Risk Management and Responses of Banks under COVID-19 and Fed Rate Hike

Abstract

This paper aims to study how banks carry out risk management and how to avoid systemic risks in the banking industry under the interest rate hike policy in the post-epidemic era. This paper divides bank risks into four main aspects to analyze the impact of sharp interest rate hikes on bank risk management in combination with the acquisition of Credit Suisse and the bankruptcy of Silicon Valley Bank. They are credit risk, liquidity risk, market risk (specifically interest rate risk), and systemic risk. After research, this paper finds that during the COVID-19 period, including interest rate hikes, governments have introduced corresponding policies for risk management. Moreover, when the market risk puts too much pressure on the bank, it will lead to credit risk and then liquidity risk, which may eventually trigger systemic risk under the joint effect. Given the current high inflation situation, the high level of interest rates will remain for a long time. Therefore, banks should do as much as possible to manage risks and reduce the possibility of triggering systemic risks.