HOW CENTRAL BANKS’

POLICIES ARE ENABLING

FINANCIAL MARKETS TO
SURVIVE COVID-19
WBR Insights & Swissquote Bank White Paper
How central banks’ policies are enabling financial markets to survive Covid-19 2

Contents

Key Findings 03

Methodology 04

Introduction by Swissquote Bank 05

Chapter One 06
The influence of the central bank

Chapter Two 10
A race for profit in a low-interest rate environment

Chapter Three 13
How to fight low profitability

Conclusion 16

About Swissquote Bank & WBR Insights 17

Contributors

Mohamed Hajibe Maxime Mordelet

Head of Institutional Sales Institutional FX Liquidity Manager
Swissquote Bank Swissquote Bank
How central banks’ policies are enabling financial markets to survive Covid-19 3

Key Findings

Covid-19 and how it is Making a profit in a low-

influencing the central
bank’s monetary policies
82% of our respondents said that unemployment would
be the main factor influencing the central bank’s monetary
policies. As the Covid-19 pandemic impacted the global
economy, due to the fact that many industries have been
negatively affected by the lockdowns, causing major job
losses. The risk of high levels of unemployment to the
overall health of the economy is one of the key drivers for
the central banks when building their monetary policies.
39% said that the Central bank of Japan was the central
bank with the greatest flexibility to act in 2021, 19%
said the Swiss National Bank and 18% said the Bank of
England. The Bank of Japan has fared better than most with
regards to recovering from the pandemic. With more tools
available to implement within their monetary policies, the
Japanese economy has recovered from the pandemic much
more quickly compared to other regions, as the capital
expenditure and output levels were stable during Q3 and
Q4 of 2020.
interest rate environment
71% said that the bonds market would be the asset class
that will benefit the most from the economic turmoil caused
by the Covid-19 pandemic. Bond trading was able to offer
investors stability during the peak turbulence of the financial
market volatility at the start of the pandemic earlier in 2020.
This was closely followed by foreign exchange according to
16% of our respondents. Whereas, unsurprisingly, just 8%
said that equities would see the most benefit, as this asset
class saw unprecedented levels of volatility and liquidity
struggles as stock markets around the globe had a big
impact earlier in the year.
74% of respondents said they thought G10 currencies
would be the most likely to carry forward in the next six
months. Out of these currencies, the Japanese yen and
Swiss franc are set to be the most secure moving forward.
However, the US dollar will still be a safe-haven for foreign
exchange trading and reduced US dollar rates would help to
fund currency for carry trades.

63% of our respondents agree that the influence of the

central banks has diminished in recent years. Typically,
central banks will only intervene in the financial markets if it
is in accordance with their monetary policies.

Working to reduce low-profitability

69% of our respondents said that compliance with regulations and choosing the right markets would be the key areas that
the banking industry will define success in the next five years, off the back of the Covid-19 pandemic. Of course, it is of
vital importance for banks to comply with regulations to gain both partner and consumer trust. However, the number of new
regulations that have been introduced in the last 10 years and that is set to be introduced in the near future is becoming
increasingly difficult for the banks to negotiate.

50% said that a conventional or mixed strategy should be adopted by banks to improve their asset and liability management.
Whereas, 48% said a defensive bond strategy would be the best way to ensure success moving forward. The banking
organisations had to negotiate large-scale structural changes and new regulatory challenges in recent years, which has
impacted their overall strategies.
How central banks’ policies are enabling financial markets to survive Covid-19 4

Methodology
In Q4 of 2020, WBR Insights surveyed 100 Heads of Trading, Heads of eFX and similar from across European Forex
firms and sell-side banks in the APAC and EMEA regions, to find out what they thought of the central bank’s influence,
the race for profit in a low-interest rate environment and how these two areas within the financial services industry are
able to fight low profitability.

The report aims to gain a greater understanding of how the overarching marketing tactics and strategies are shaping
results from across forex firms and sell-side banks.

The survey was conducted by appointment over the telephone. The results were compiled and anonymised by WBR
Insights and are presented here with analysis and commentary from Swissquote contributors.

What size is Which of the following best What type of company do you work for?
your company? describes your job title?

26% 28% 41%

250-500 Head of Trading Institutional
8% 20% Funds 47%
501-750 Head of eForeign Exchange Tier 1 &
2% 26% Tier 2
751-1,000 Head of Treasury Banks
2% 26%
1,001-1,250 Chief Operating Officer
62%
More than 1250 2%
Pension Funds 10%
Hedge Funds

In which country is your

company headquarters 9%
located? Germany
15%
UK 5%
Austria
4%
Saudi Arabia
6%
11% Quatar
France 7%
Italy
10% 7%
Benelux Japan
8%
6% UAE
Switzerland 3%
Bahrain

9%
Australia
How central banks’ policies are enabling financial markets to survive Covid-19 5

Introduction by Swissquote Bank

With the announcements of promising results from
several of the COVID-19 vaccines currently under trial, the
resolution of the present worldwide health crisis seems
almost at hand. However, we are still facing the colossal task
of rebuilding the economies roughed up by the pandemic.
While there is no miracle cure for that, central banks
undoubtedly play a crucial role in cushioning the impact of
the pandemic on the economy and fostering the recovery.
Eager to shed some light on the subject, we commissioned
this survey to pick the brains of the people who are on the
frontlines – senior executives from banks, funds and forex
firms across a broad geographic area.
We hope that you will enjoy the read and find it as
informative as we did!

In order to do so, they must perform a delicate balancing act

with their three fundamental goals: to stimulate growth and
job creation, while maintaining stable prices for currencies
and bonds. Mohamed Hajibe & Maxime Mordelet

Extraordinary times call for extraordinary measures, and

some central banks have already been rolling out new
experimental monetary policies. It is therefore no wonder
that central banks, their potential strategies and how they
will affect prices and profitability are recurring themes in the
questions we see from clients and partners.
How central banks’ policies are enabling financial markets to survive Covid-19
CHAPTER ONE
The influence of the
central bank
The impact of the Covid-19 pandemic has seen government
bond yields across the globe reach record lows, reflecting
the increasing prices caused by many central banks quickly
making the decision to cut interest rates in March 2020, as
part of their plan to introduce bond-buying programmes
to help counteract the economic effects of the virus. As a
result, global investors are now being faced not only with the
outlook of almost-zero or negative returns from safe debts
but a huge reduction in volatility of bond prices that has
disrupted short-term bets.
Foreign exchange, on the other hand, has witnessed a sharp
rise in volatility that is much higher than previous levels
last seen 12 months ago1. This has come at a time when
the bond markets have moved sideways, as yields have
continued to remain low for quite some time. Therefore,
despite the volatility levels, FX has become an increasingly
important asset class for investors and bond traders, as this
asset class is able to offer higher returns compared to bonds.
However, the Central Banks are known for intervening with
the foreign exchange market to avert large evolutions in the
value of their currencies, to ensure they remain at a steady
value for long periods of time. This naturally includes central
banks monitoring and regulating liquidity in domestic
currencies or larger currency swaps, the management of FX
currency reserves and controlling the supply in circulation.
The central banks will only intervene in financial markets, such
as FX, where they see fit and when it is in accordance with
their monetary policies. FX traders will be closely monitoring
these new policies so that they can take advantage of the
resulting impact on foreign currency markets.
1. https://www.ft.com/content/f9a90f8f-2ef5-45dc-973f-ed1c5c4dcc08
2. https://www.reuters.com/article/us-japan-economy-boj/kuroda-says-boj-ready-to-ease-more-has-tools-to-cushion-pandemic-pain-idUSKBN26X1HZ
3. https://www.theguardian.com/business/2020/jun/18/bank-of-england-uk-economy-quantitative-easing-coronavirus-crisis
39% of respondents said they thought the Central Bank of
Japan would have the greatest flexibility to act in the next
12 months. This was closely followed by 19% stating the
Swiss National Bank and 18% cited The Bank of England. In
October 2020, Bank of Japan Governor, Haruhiko Kuroda
said2 that they were in a strong position to implement
further monetary easing steps and that there were more
tools available to help cushion the blow of the Covid-19
pandemic. Japan’s economy hit its lowest point during the
pandemic from April to June this year and has since seen a
marked improvement as exports, capital expenditure and
output have remained fairly stable during the rest of the
summer and early autumn.
32% of respondents agree with the statement that the
central banks are open to further easing due to the Covid-19
pandemic. The Bank of England announced in June3 that
the new monetary policy decision would be to keep interest
rates at a record low of 0.1% and a majority voted 8 – 1
in favour of increasing government bond-buying to £100
billion, taking the total asset purchases to £745 billion. The
backdrop for this decision came from the UK facing its worst
recession since records began in 1706, as a direct result of
the Covid-19 pandemic.
The majority of our respondents (81%) cited that they
thought unemployment was the main factor currently
influencing central bank monetary policies this year.
Naturally, maintaining the balance between high
employment levels and stable currency and bond prices
are of key importance to the central banks. Every country
witnessed sharp spikes in unemployment this year as the
Covid-19 virus quickly spread across the globe, causing
How central banks’ policies are enabling financial markets to survive Covid-19 7

many governments to imposing nationwide lockdowns in an
attempt to curb its spread.
As the job market was drastically affected by the virus, the
central banks have had no choice but to step in to help
keep their economies running as smoothly as possible.
Economists witnessed a slew of experimental monetary
policies coming from central banks across the globe as they
rapidly grappled with the economic effects of the virus.
From the Bank of England implementing quantitative easing,
to the US Federal Reserve adopting new lending principles
to midsize companies to keep credit flowing smoothly, each
new policy has become a weapon to stimulate growth and
shore up their economies for the next 12 – 18 months.

1%
Strongly
Disagree

21% 31%
Disagree
Strongly
Agree

How would you respond

to the following statement?
32% of respondents agree with the statement that the central
I think central banks banks are open to further easing due to the Covid-19 pandemic.
are open to further
easing due to the
Covid-19 situation
15%
Neither Agree
or Disagree

32%
Agree

s
Q. What do you think the central banks will do with regards to further quantitative easing strategies to combat the impact of
Covid-19?

A. Central banks will do whatever it takes to protect the most vulnerable economic actors of this Covid-19 crisis. Protecting local jobs
and smaller businesses appears to be a priority.

However conventional tools don’t have much room for manoeuvre and the number of government bonds already held is important thus
opening the door for new purchase programs of risk-free assets and potentially risky assets like equities (Japan and Switzerland are
already doing it).

Maxime Mordelet
How central banks’ policies are enabling financial markets to survive Covid-19 8

1%
Growth
17%
What do you think the main factors influencing Public Deficit
central bank monetary policies are at the moment?

82% cited that unemployment is the main factor influencing

central bank monetary policies in 2020.

82%
Unemployment

We asked our respondents to explain their answers further, here is what they told us:

“Employment is the roots “If central banks and

“Unemployment is a bigger risk authorities don’t pay
on which every economy is because it has put a lot of people
being built. With jobs drying attention to unemployment
and industries in danger of losing right now, there could be a
out due to the virus, central out completely on income.”
banks have to step in to disaster in the next
keep the economy running.” 12 months.”

“Prices of commodities on exports have risen and

“There is no country where the unemployment
that had pushed the deficit higher. Central banks
rate hasn’t spiked this year. This spike has
will have to concentrate on this to assure stability
triggered the number of policies that the central
in the future.”
bank has to keep ready for the next 12 months.”

“It’s the structure and dynamic of the

“None of the economies have a strengthened labour labour market right now that concerns
force and central banks are trying to pump in money most of the central banks because income
to help those without jobs to survive.” has dried and money has to be pumped
into the market.”

s
Q. Are you surprised the majority of respondents said unemployment would be the biggest factor influencing central bank
monetary policies?

A. Short-term focus is definitely on unemployment. Decision makers know the consequences of Covid-19 for the job market and we
saw what happened in the US with 701,000 jobs lost in March during the first wave. Impacts might also shift to 2021 and it could be
years before levels of employment return to those seen before the pandemic. According to me, public deficit will be a key factor for
deciders given the jump in public debt for some European countries. It is already leading to disagreements in the EU and this should
go on in the next months.

Maxime Mordelet
How central banks’ policies are enabling financial markets to survive Covid-19 9

In your opinion, which central bank has the greatest 5%

flexibility to act in the next 12 months? Strongly
Disagree
10% 23%
Strongly
Federal Reserve
Agree
18%
14% Disagree
European
Central Bank 39%
Bank of
Japan How would you respond
to the following statement?

The influence of
central banks has
diminished in the
recent years
14%
Neither Agree
18% or Disagree
Bank of
England

19% 40%
Swiss National Bank Agree

39% said the Bank of Japan has the greatest flexibility to act 40% agree with the statement that the influence of central
in the next 12 months. banks has diminished in recent years.

s s
Q. Why do you think the Bank of Japan was cited as having
the greatest flexibility to act in the next 12 months? Are you
surprised by this data?
A. I am not surprised since the Bank of Japan abolished its
limit on buying government bonds in April. The IMF projected
Japan’s economy to shrink 5.2 percent this year. Kuroda looks
determined to control the yield curve and to achieve its 2
percent inflation target, which could be done in 2022.
I am more surprised to see the Federal Reserve cited as having
less flexibility given the current market conditions and the FED’s
review of its monetary policy this summer. The FED’s reaction
to unemployment will be asymmetric and potentially leading to
further easing.
Q. Why do you think the banks influence has diminished in
recent years? Do you think they can bounce back?
A. The prospect of monetary stimulus has buoyed investor
confidence over the past year but this has come to an end. The
impact of monetary stimulus on spending is weaker than it has
ever been. Firstly, because purchasing power is concentrated
among the wealthiest who are less sensitive to central bank’s
incentives and then we have a link between real interest rates
and personal saving which has broken down and led to reverse
effects on consumer spending.
This influence can bounce back if the strategy is reviewed to
support smaller businesses and local actors. The action plan
should be directed to marginal consumers who can spend.
More reactivity is also needed with direct actions to prevent
deterioration of economies. Finally, central banks will have to
face new challenges like climate change which could have severe
economic consequences.

Mohamed Hajibe Mohamed Hajibe

How central banks’ policies are enabling financial markets to survive Covid-19

CHAPTER TWO
A race for profit in a low-
interest rate environment

As business across the globe suffered from reduced
activities and cash flow, which was particularly acute in
the travel, retail, aviation and automotive industries, many
central banks responded by reducing interest rates amid
other short-term monetary policies. This was put into action
to address the early liquidity shortages and to avert market
freezes4. In addition to this, six major central banks including
the US Federal Reserve and the European Central Bank
struck a deal to lower rates on currency swaps to help the
financial markets keep on functioning as normal5.
When surveyed in Q4 of 2020, 57% of respondents said
the US Dollar will rally following the impact of the 2020
presidential election. In early November 2020, the media
announced Joe Biden had won the race to the Whitehouse
and has become President Elect, leaving President Donald
Trump instigating law suits into election fraud and refusing
to concede his current position. With the battle for ultimate
control of the senate is still ongoing, and with a Democratic
Party victory, the US dollar is projected to weaken under Joe
Biden’s presidency6.

Throughout 2020, the central banks have experienced 74% of respondents ranked G10 currencies as the most
greater resilience compared to the 2008 financial crisis likely to carry forward in the next six months. The ability to
and are in a stronger position in both capital and liquidity. attract capital will be key to success in the next year.
However, there are legal implications for investors when
central banks lower interest rates to below zero. Many
investors and buy-side firms are hoping that those sell-side
banks storing money at the US Federal Reserve will spend
their available cash instead of opting for the central bank to
keep it on their behalf.

As a result of this unusual financial climate, it has become

increasingly difficult for investors to make profits. 71% of
respondents said that bonds would be the asset class that
would benefit the most from the Covid-19 pandemic. When
asked to explain their answers further, they specifically
mentioned that sourcing liquidity has become a major issue,
which has meant that a larger number of transactions have
come from cash related securities, such as FX. Whereas,
other respondents cited that as the equities market
experienced higher levels of volatility due to the pandemic,
more investors have turned their focus on bonds to ensure
stability across their portfolios.

4. https://www.bis.org/publ/bisbull21.pdf
5. https://home.kpmg/xx/en/home/insights/2020/05/central-banks-respond-to-pandemic.html
6. https://www.telegraph.co.uk/investing/news/us-dollar-2020-election-how-trump-biden-win-affect-currency/
How central banks’ policies are enabling financial markets to survive Covid-19 11

1%
71% of respondents said that bonds would be the asset class 4% Cryptocurrencies
that would benefit the most from the Covid-19 pandemic. Cash
8%
Which asset classes do you think will benefit the Equities
most from the current Covid-19 pandemic?

16%
Foreign Exchange

71%
Bonds

We asked our respondents to explain their answers further, here is what they told us:

“Liquidity is a major issue but “Amid all the challenges, bonds “Bonds are the safety net
it’s important which is why a continue to remain smooth in that investors are working
major chunk of transactions the market behind the volume of with right now.”
will be coming from cash Foreign Exchange.”
related instruments.”
“Private Equity investment will rise again
“With most of the equity as businesses keep slowing down and can’t
segments showing higher manage operational capital.”
volatility, investors are turning
towards bonds for the stability “We all know that life sciences stocks
that they would like right now.” are the hottest right now but the
market seems to be struggling with
“Every portfolio and investor is inconsistency. This inconsistency has
seeking stability which can only shifted all the attention to bonds which
be provided by bonds.” possess stability.”

s
Q. Looking at the data, do you think the sell-side can shift their focus away from bonds in 2021, if a vaccine for Covid-19 is discovered?

A. Risk adverse sentiment has been building up with the Covid-19 pandemic. Bonds remain the first choice for investors waiting to see
how the situation evolves as they offer security and liquidity.

Equities could profit from a rebound if a vaccine is discovered but August levels will be hard to reach given the mid and long-term
consequences of this crisis.

I think foreign exchange should see increasing volumes with the US elections and future actions from central banks. Carry trades will
be a natural decision for investors looking for short-term profitability.

Mohamed Hajibe
How central banks’ policies are enabling financial markets to survive Covid-19 12

Which currencies are you most likely to carry What do you think the impact of the US presidential
forward in the next six months? elections will be on the US Dollar?

1% Nordics

1% Gold Bullion
23% 1% LATAM NDFs 57%
Middle
East Dollar will rally

12%
There will be no impact

31%
Dollar will decline

74%
G10

74% ranked G10 currencies as the most likely to carry When surveyed in Q4 of 2020, 57% said they thought
forward in the next six months. the US Dollar will rally following the impact of the 2020
presidential election.

s s
Q. Why do you think G10 currencies were ranked so highly
compared to currencies from emerging markets regions?
A. The uncertainty brought by the Covid-19 can explain the
lack of attraction for emerging currencies. Investors might be
reluctant to invest in the Brazilian Real or the Indian Rupee
for instance given the medical situation in those countries.
In Asia, the CNH performance might be influenced by the
outcome of the US elections.
In G10, the Japanese yen and Swiss franc remain safe bets but
the dollar looks to be the best safe-haven currency. Lower US
rates make it a more attractive funding currency for carry trades.
Q. Why do you think the respondents were so positive that
the US Dollar will rally following the impact of the presidential
election this year? Do you agree?
A. Historical data has shown the US dollar rallied in the 100
trading days after nine of the past 10 elections from 1980 to
2016. Election polls predict Biden to be the new president of
the US, which I think will lead to a risk-on mode post-election.
Stocks will probably rally in light of more active strategies to
fight Covid-19 and protect US businesses.
This move should be negative for the dollar in the short-term, as
it may lose its appeal of safe haven currency, but Biden should
also normalize trading relationships and reduce tariffs, which will
be positive for the dollar in the long term.

Maxime Mordelet Maxime Mordelet

How central banks’ policies are enabling financial markets to survive Covid-19

CHAPTER THREE
How to fight
low profitability

Back in January 2020, the outgoing Bank of England governor,
Mike Carney, warned that the global economy was heading
towards a “liquidity trap” that would weaken central banks’
efforts to dodge a future recession, as they are running out
of the ammunition they need. Although the central banks
have a reduced arsenal for fighting economic downturns, the
tools include quantitative easing, cutting interest rates and
providing direction on future interest rates7.
Only a few months later, due to the economic impact of
Covid-19, that’s exactly what the central banks’ are currently
facing, having been catapulted to the forefront of the policy
response. Taking quick action, they were able to create
tailor-made decisions based on the specific nature of stress
levels within each region. This entailed providing funds
to the private sector, interventions of domestic currency
markets and emerging market economies.
According to our research, 50% of respondents said the
banks should adopt a conventional or mixed strategy to
improve their asset and liability management in order to
maintain liquidity and enable lending at the same time to
sustain healthy balance sheets. Whilst, 69% of respondents
said that compliance with regulations and choosing the right
markets would be the main areas the banking industry will
define success in the next five years.
By asking European banks to postpone share buy backs and
dividends payments until October at the earliest, central
banks want to help European banks to support lending
during the pandemic and to effectively manage their losses.
The European Central bank made this decision based on the
levels of heightened uncertainty knowing that it would not
be popular with investors.
However, 35% of our respondents disagree that the recent
drop in European bank stocks due to the ban on dividend
payments imposed by regulators was justified. Many working
within financial markets have felt that this decision would
reduce a key source of revenue for investors and it could
also increase the cost of capital8.
The European Central Bank has for the past six years been
levying charges on the amount of excess cash that banks
are depositing. In response to these new charges, some
banks have started to charge interest for managing their
wealthier clients’ accounts. According to our study, 70%
of respondents said that they agreed that banks should tax
their inactive client’s deposits to avoid bearing the costs of
negative rates.

However, these measures will be impacted by the post-

Covid-19 economic period, such as a higher rate of sovereign
debt and the increased sensitivity towards the economic
environment, in particular, navigating the inflation process
which could complicate the deals central banks can make.

7. https://www.ft.com/content/713a70b4-315d-11ea-a329-0bcf87a328f2
8. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/europe-s-dividend-ban-hurts-bank-investors-these-shares-are-
most-impacted-59773137
How central banks’ policies are enabling financial markets to survive Covid-19 14

Which strategy do you think banks should adopt to

14% improve their asset and liability management?
Strongly 19%
Disagree Strongly
Agree
2% 8%
Diversification Aggressive
(real estate) (more exposure to stocks/indices)

How would you respond

to the following statement?

The recent drop in

European bank stocks
due to the ban on dividend
payments imposed by
regulators is justified
50%
Conventional
23% (mixed)
35% Agree 40%
Disagree
Defensive
(bonds)

9%
Neither Agree
or Disagree

35% of respondents disagree that the recent drop in 50% of respondents said a conventional or mixed strategy
European bank stocks due to the ban on dividend should be adopted by banks to improve their asset and
payments imposed by regulators is justified. liability management.

s s
Q. What do you think about the ban on dividend payments on
European bank stocks imposed by regulators? Do you think it
is harming or helping the industry?
A. I think the duration of such measures will help or harm the
industry. It will be profitable in the short-term to help banks
absorb losses and support lending throughout the coronavirus
crisis but a prolonged suspension of dividends could have
adverse consequences. The ECB ban is credit positive but if the
policy is extended for too long it risks increasing banks’ cost of
capital. This is unfair for those that are well-capitalized.
Q. Do you agree with this data? If not, why not?
A. Banking institutions are facing structural challenges with new
regulations from Basel III with increased capital buffers and
liquidity ratios. On top of that, the prolonged period of low rates is
compressing margins and creates incentives to expand the assets
hold in order to cover yields.
In my opinion, the situation justifies a conventional management
because of uncertainty. Bonds remain a priority as they present
less volatility than stocks and good liquidity compared to others
investments like real estate which can bring higher returns but also
implies longer investments. The banks should stand ready for higher
credit risk due to the coronavirus and liquidity should be a priority.

Maxime Mordelet Mohamed Hajibe

How central banks’ policies are enabling financial markets to survive Covid-19 15

70% said that they agreed that banks should tax non-active client’s deposits to avoid bearing the costs of negative rates.

Do you think banks should tax non-active client’s Q. Are you surprised by this data?
deposits to avoid bearing the cost of negative rates?
A. I am not surprised since banks in Switzerland are already
doing it. Non-active client’s deposits should be taxed since the
central banks charge for deposits. A situation where a client is
70% costing money to the bank due to inactivity is not viable.
Yes

30% Mohamed Hajibe

No

69% of respondents said compliance with regulations and choosing the right markets would be the main areas the banking
industry will define success in the next five years.

What do you think will define the success of the banking industry in the next five years?
(Ranked from 1 – 5, 1 being not important and 5 being very important)

29% 30%
27%
25% 25% 25%
23% 22% 23%
19%
17%
14%

6% 6% 8%

State of the art technology Cost reductions Mergers & acquisitions

38%
32%
31%

22% ■ 1. Not important

15% 26% ■ 2. Less important
10% 11% 11% ■ 3. Somewhat important
3% ■ 4. More important
■ 5. Very important
Choosing the right markets Compliance with regulations

s
Q. What else do you think will help drive banking success in the next five years?

A. Complying with regulations is very important to gain partner and consumer trust. Regulation is harder and harder, long-term
success can’t go against compliance with regulations.

According to me, investing in technology is also crucial to keep competitiveness and improve customer experience. We are lucky at
Swissquote Bank since our founders were first of all engineers before becoming bankers. Technology is part of our DNA. Attracting
and retaining the right talent to support the company is also key for development. Finally, strategic acquisitions will help companies to
gain market share assuming merger and consolidation is done properly.

Mohamed Hajibe
How central banks’ policies are enabling financial markets to survive Covid-19 16

Conclusion

Since the start of the Covid-19 pandemic, central banks
have been in a stronger position compared to 2008
to respond to the economic crisis. They have quickly
implemented monetary policies to help their economies
weather the storm. However, the impact of these new
emergency policies has negatively impacted investors as
interest rates have hit an all-time low in many regions and
it has become increasingly difficult to make profits in many
asset classes.
As the private sector struggled with cash flow due to
reduced business activity during the peak of lockdowns
across the globe, central banks lowered interest rates. The
central banks also introduced policies to help reduce the
impact on sourcing liquidity, as well as the six central banks
that struck a deal to lower rates on currency swaps to shore
up the financial markets during the crisis and to prevent
markets from freezing completely.
environmental issues and sustainability. A ‘return to normal’
has frequently been cited as a negative option and many
governments have renewed their commitment to supporting
a reduction in carbon emissions.
Within ESG as a theme, the social aspect is projected
to become increasingly important to both investors and
financiers in the years ahead. It will be a good opportunity
for central banks to build on this strategy moving forward
by supporting their societies and communities at both an
individual and corporate level. Not only will this help banks
to restore their dented reputation following the 2008
financial crisis, but it can also help to provide the right
support processes to build a brighter future for generations
to come.

According to our survey, 71% of our respondents said that

bonds would be the asset class that would benefit the
most from the Covid-19 pandemic. This asset class was
not as affected from the same level of liquidity shortages
as other asset classes which were heavily dependent upon
transactions made from cash securities, such as foreign
exchange trades. It was the equities market that saw the
highest levels of volatility during the early months of 2020
which led to investors looking to the stable market of bonds
to ensure stability across their portfolios.

50% of our respondents said that the central banks

should adopt a monetary policy that was both conventional
overall but including mixed strategies to overcome the
economic fallout caused by the global pandemic. These
respondents thought that this would provide banks with the
best option for improving asset and liability management to
maintain liquidity levels across asset classes, enable lending
and to maintain healthy balance sheets moving forward into
2021 and beyond.

As the world moves forward and looks to economic

recovery, there has been a strong feeling in many regions by
the general public that there should be a renewed focus on
How central banks’ policies are enabling financial markets to survive Covid-19 17

About Swissquote Bank and WBR Insights

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