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1 1 (December 23, 2020)

handle is hein.crs/goveabv0001 and id is 1 raw text is: aCongressional SResearch Service COVID-19 Impact on the Banking Industry: Conditions in the Third Quarter of 2020 December 23, 2020 The economic ramifications of the Coronavirus Disease 2019 (COVID-19) pandemic could include borrowers missing loan payments, potentially causing distress for banks. Bank regulators release comprehensive data on bank condition and income every quarter. On December 1, 2020, the Federal Deposit Insurance Corporation (FDIC) released the Quarterly Banking Profile: Third Quarter 2020, which reports aggregate data from all 5,033 FDIC-insured institutions as of September 30, 2020. This Insight presents certain statistics about how the pandemic is affecting banks. Background The pandemic has caused businesses to close or limit operations and millions of job losses. Economic downturns threaten bank profitability because more borrowers might miss loan repayments, which can reduce bank income and impose losses. Meanwhile, bank liabilities-the deposits they hold and the debt they owe-obligate banks to make funds available to depositors and creditors. If borrower repayments decline enough, a bank's ability to meet its obligations could become impaired, potentially causing it to fail. In contrast, bank capital-largely equity stock and retained profits from earlier periods-enables a bank to absorb a certain amount of losses without failing. For this reason, bank regulators require banks hold certain amounts of capital (in addition to subjecting them to a variety of safety and soundness regulations) in order to avoid failures. However, if losses are sufficiently large, banks may nevertheless fail, reducing credit available to the economy and potentially destabilizing the financial system. Certain effects of, and bank responses to, economic downturns-such as reduced income and increased credit loss reserves-occur shortly after the onset of economic deterioration. Other effects-such as increased loan delinquency, incurred losses, and reduced capital value-occur after a longer lag (see CRS Insight IN11501, COVID-19 Impact on the Banking Industry: Lag Between Recession and Bank Distress). Thus far the bank industry is holding up well, but as the pandemic continues to affect the economy, signs of stress may start to emerge. Congressional Research Service https://crsreports.congress.gov IN11562 CRS INSIGHT Prepared for Members and Committees of Congress

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