The Impact of COVID-19 on the Financial System

Abstract

The COVID-19 pandemic has caused a seismic shift in the functioning, stability, and resilience of the global financial system. This shift is the result of an intricate and multi-dimensional impact that the pandemic has unleashed. Within the context of this unprecedented crisis, this paper sets out to investigate the far-reaching effects of the pandemic on the complex web of financial institutions, markets, and regulatory structures. In this research, we investigate the myriad ways in which the global financial system has been impacted by the COVID19 pandemic. It investigates the several ways in which the financial industry has been impacted, doing an analysis of the disruptions, difficulties, and adjustments that have surfaced as a result of this extraordinary crisis. The result reveals the negative impact on financial system. Every crisis is unique in its own way. A decade ago, the financial system, and banks in particular, were at the center of the global financial crisis. They were both the primary cause of the crisis as well as the primary catalyst that precipitated it. This time, the crisis is being caused by a pandemic, and the financial sector is being looked at more as a potential element of the solution than as a potential part of the issue. This is obvious from the enormous and rapid influx of new loans to businesses and people during the current crisis, to help them in the face of cash-flow problems. These loans are often backed by state guarantees. From the point of view of the stability of the financial system, this paper analyzes and compares each of these crises. It starts off by going over some of the events, the lessons, and the policy responses that took place during and after the global financial crisis, with a particular emphasis on the banking system. It illustrates how the responses to the global financial crisis left the financial sector significantly better positioned to deal with the COVID issue while also delivering support to the economy as a whole. In its conclusion, it draws some lessons about the stability of the financial system from recent events, including potential areas for further investigation and reform.