The COVID-19 crisis has extended the likely period of ultra-expansionary monetary policies, while at the same time keeping banks’ net interest margins narrow for an indefinite period of time. Credit default ratios will rise due to the COVID-19 crisis over the medium-term, thus lowering banks’ equity ratios. While dividend moratoriums prescribed by regulators in principle bolster banks’ capital, they make investment in bank equity less attractive and create a gap between the remuneration of bank equity and subordinated capital. The response to the COVID-19 crisis testifies that the post-GFC regulatory reforms were successful in bolstering banks’ capital and in reducing pro-cyclicality. At the same time, there remains room for improvement.

With the year 2020 dominated by Covid-19-related restrictions of physical interaction and an increasing relevance of technology and digital interaction for businesses and citizens,  legislative initiatives by the European Commission aim at addressing digital transformations in Europe’s economy.