Coronavirus Financial Crisis Article 2022

Running Head: FINANCE
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Name of the Student
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Author Note

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Part A
Pandemic Coronavirus is a global crisis which can be seen both in financial and
economic terms. The rapid increases in cases of this disease have troubled the most important
sectors, which is the banking sector in the world. The world trading system related to
transportation and industries have been paused and the productivity of financials of banking
system have been stopped. Banking sector, which is the most important financial transactions
sector which controls the overall financial system of the world economy. They offer all type
of deposits, loans, cash and credits. This process drives the entire economy. Coronavirus
pandemic has a great impact on this financial sector. Banks have been substituted by various
risks that has brought down the entire economy of the world constraints. Some of these risks
are:
 Credit Risk- Credit Risks is related to the risk of debt that the borrower fails to do
payments of the loans. Coronavirus has a huge impact on the global and financial
economy. The macro-economic slowdown the overall world businesses and financial
problem in households. The borrowers are unable to meet their daily financial
requirements. Pandemic Coronavirus has affected the businesses to stop down. People
are not allowed to go outsides. The quarantine period has forced the government to
bring new policies and procedures for the safety of the people. People are not advised
to stay quarantine. This affected the business sector. The banks are exposed to credit
risks due to financial problems. It creates vulnerabilities for the industries and
individual person (Hafiz et al. 2020). The borrowers will be not able to pay their loans
due to affected financial problems. Banks will cause a huge effect in their Non-
performing assets. The long-term loans that has been provided to the borrowers will
have a huge impact. Most of the borrowers borrow the loans in terms of residential
mortgage (Gossner et al. 2016). This type of loans is used for the commercial

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purposes. This type of long-term loans are financed on a huge amount. The
installment rate of these type of loans is also very high. The borrowers has to pay
interest on the loans. Banks are able to generate a high rate of return from these type
of mortgage loans. The demand for residential mortgage is very high and the
borrowers considered this as the best form of debt security. Investors are attracted
towards this type of loans because, banks protect the investors from different type of
inherited risk for the borrowers. But, coronavirus pandemic has done major effect on
residential mortgages. The government policies has delayed the loan payments due to
financial problems. This enables the banks to credit risks. The risk of this debt default
may cause failure in installment payments. Hence, banks face majority of risk from
residential mortgages. Other type of credit risk is related to the commercial customers.
Banks also provide financial services to the commercial customers. They provide
loans and other type of debts to the business entity for doing the business. Business
issue loans and deposits from the bank through saving accounts, certificate of deposits
and checking accounts. Coronavirus has also affected the business sectors. This
pandemic diseases has stopped the business trading process and has affected the
industries profitability. The performance of these industries goes down in the stock
market. Most of the business sectors like manufacturing sectors have undergone
failure in these few months. Hence, the commercial customers are not able to pay
back their debts to the retail banks. The retail banks have been affected by these
consequences (Lea 2020). They are not able to receive credits from commercial
customers. This type of credit risks has affected the commercial banks of all over the
world.
 Market Risk- Market risk involves the risk of investor with respected to the
performance of the business in the financial markets. This is a type of systematic risk

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which cannot be eliminated in pandemic case. Banks arise its market risk from the
loss of trading accounts. This happens when the value of financial assets gets declined
in the financial market (Barua 2020). This type of risks is related to the investors who
suffer from financial loss. Pandemic coronavirus has affected the trading business of
the business. The trading from other countries have totally stopped and hence, the
trading of financial assets like bonds, shares and options have been stopped.
Businesses find huge losses in trading this financial assets (Fernandes 2020). The
pandemic diseases has raised the interest rates of these financial instruments. The
credit quality of the financial market has been declined. It results in poor liquidity
conditions. Hence, due to the above factors the value of financial instruments have
declined and affected the capital markets. The investor’s donot find secure to invest in
this financial assets that are held in the bank portfolios. They find it riskier to invest in
the financial assets which can suffer from market price volatility. The investments in
financial instruments is a major contribution to the capital market. Hence, coronavirus
pandemic has affected the financial institutions like banks and also the capital
markets. Banks suffer a loss from trading of financial instruments in the global
financial market within a few months (Ramasamy 2020). Market risk is the primary
risk of this pandemic disease.
 Reputational Risk- This type of risk refers to the negative image to the public sue to
uncontrollable event. Pandemic coronavirus has become uncontrollable. Banking
sectors have to manage the liquidity, credibility and operational position of its
activities. They have to manage the brand & reputation of the bank to allow more
individual to deposit and seek loans from them (Jull 2020). Coronavirus financial
crisis has allowed banks to become more challenging for managing the overall
liquidity and operation of the business. The coronavirus pandemic may affect the