Kroll Bond Rating Agency (KBRA) releases a research report that outlines our views on the current stresses facing the U.S. banking industry amid the ongoing economic challenges brought on by the coronavirus (COVID-19) pandemic. The report also dispels other areas of the balance sheet that, in KBRA’s view, do not constitute areas of substantial risk, despite some recent market research to the contrary.
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While banks are far less a part of the problem during the COVID-19 outbreak compared to the global financial crisis (GFC), KBRA believes uncertainty around the extent of expected loan losses over the course of the pandemic is weighing on investor sentiment. And while we see two important differences with the GFC that should help keep losses manageable, namely (1) less of a speculative asset bubble supporting loan collateral, and (2) far greater fiscal and monetary support from the federal government, we have used GFC-era losses as the basis for a stress test aimed at dimensioning the U.S. banking system’s ability to absorb losses during COVID-19.
In the more likely scenario of a sharp downturn and a slow but steady recovery, we believe COVID-19 will be more of an earnings event than a capital event for the vast majority of banks in the U.S.
KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA. Kroll Bond Rating Agency Europe is located at 6-8 College Green, Dublin 2, Ireland.
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