The COVID-19 Pandemic and Relationship Banking in Germany: Will Regional Banks Cushion an Economic Decline or is A Banking Crisis Looming?

Abstract

By providing liquidity Hausbanks can support business clients to overcome the social shutdown and hence cushion the economic impacts of the COVID-19 pandemic. Germany's regional banks demonstrated such ability in the financial crisis of 2008/09 when, in contrast to large banks, they extended lending. Revisiting research on the global financial crisis and relationship banking, this note presents hints on the soundness and lending ability of retail banks, discussing their influence in the virus-related economic turmoil. Banks appear better prepared to resist the crisis than in 2008. Still, the (looming) turmoil of the real economy at large tends to stress all banks and regional banks in particular, owing, among other reasons, to their leading position in business lending. The crisis represents a chance for Hausbanks to prove their commitment to business clients and provides a possibility for researchers to analyse the performance of different types of banks.