As the provider of funds that allow companies to function, banks have the ability to make or break economies.
While the Global Financial Crisis (GFC) of 2008 left investors with a wary disposition regarding banks, it could prove a misstep to allow lessons from the past to taint today's investment outlook.
If there's one thing we can take from our industry's lengthy disclaimers, it's that past performance should not be used as a guide to future returns'. In the case of banks, we believe this has never rung more true.
Here are five things to know about banks, the current crisis and where we are seeing opportunities.
1. Banks are not the cause of the crisis
Unlike during the GFC, banks are not the cause of the current economic crisis or positioned at its epicentre.
Today's crisis is one of global healthcare first, financial markets second. No one person, company, government or country is to blame for starting it and there is no benefit to creating corporate scapegoats to carry the blame.
Society will need to work together to solve it.
2. Banks are a part of the solution
Commercial banks are being called up by their respective central banks and governments for both immediate crisis-management measures and longer-term economic recovery plans.
Central banks have responded to the crisis with waves of policy measures to ensure market liquidity and the smooth functioning of banks.
Banks are being urged to keep lending in order to keep the economy alive, with government-backed loan guarantee schemes helping to preserve banks' capital ratios and significantly reduce the riskiness of these loans.
3. Banks are a vital monetary transmission mechanism
Providing up to 80% of credit to the European economy, banks are the primary providers of business loans, which keep companies alive during lockdown and will be used to fuel growth and redevelopment when societies begin to reopen.
We are growing increasingly confident with each policy action announced that policymakers realise that, in order to ensure banks keep lending and prevent a major credit crunch, they are going to have to absorb the economic losses banks would otherwise take.
If they do not, the banks will have no option but to batten down the hatches and protect themselves in an exercise of self-preservation. Hence the need for government guarantees on Covid-19 related loans.
We are growing in confidence that policymakers are providing all the support required for banks and that capital buffers at the banks should be robust enough to withstand what we believe will be a sharp contraction and slow recovery over the next two to three years.