Concerns about the financial repercussions of the coronavirus crisis have largely faded since the first few hectic weeks. That’s a problem, because authorities should be doing much more to prepare for what could be a destabilising wave of losses.
In the face of the pandemic, the US Federal Reserve has done an excellent job of keeping financial markets functioning. It has pledged trillions of dollars to ensure that a broad range of institutions – including hedge funds, money-market mutual funds and securities dealers – can meet their immediate obligations. This has helped consumers and companies to borrow the money they need to stay afloat.
More than $1 trillion in mortgage debt – including an estimated $361bn on the balance sheets of private lenders – is in forbearance programmes.
At some point, though, the question will be not whether borrowers can keep borrowing, but whether they can afford the obligations they’ve taken on. Many in the US, for example, entered the crisis more indebted than ever.
As of March 31, non-financial corporate debt in the US stood at $10.5 trillion (Dh38.56tn), or 48.7 per cent of gross domestic product – the highest level on records going back to 1950. An unusually large share of that consists of bonds issued by companies with the lowest investment-grade ratings, or of so-called leveraged loans, to even riskier enterprises. Household debt stands at more than 75 per cent of GDP.
Much will depend on how soon the economy can return to normal. But as movement restrictions cause borrowers to fall behind on payments, potential losses are mounting. More than $1 trillion in mortgage debt – including an estimated $361bn on the balance sheets of private lenders – is in forbearance programmes. The share of car loans and credit cards in hardship stood at an estimated 7 per cent and 3.7 per cent in May, up about 18 and 180 times, respectively, from a year earlier. Defaults on the estimated $1.2tn in leveraged loans are up more than threefold.
When the reckoning comes, the crucial question will be where the losses are concentrated. The government will absorb some, given that it guarantees most mortgage loans and has put up $454bn to backstop the Fed’s emergency lending programmes. Beyond that, if losses accrue primarily to investors who can afford to take the hit, then the effect on the broader economy might be limited. If they end up on the balance sheets of systemically important financial institutions that lack the equity capital to absorb them, they could trigger distress that would worsen an already deep recession.
In the 2010 Dodd-Frank Act, Congress mandated regular stress tests to assess the largest banks’ exposures, tasked the Fed with ensuring that they built up enough capital to weather severe downturns, and adopted the Volcker Rule to curb speculative risk-taking. It also created the Financial Stability Oversight Council and the Office of Financial Research to monitor vulnerabilities outside the banking system and prod the relevant regulators to address any shortcomings.
Unfortunately, these regulators never made full use of their powers, and have more recently given up ground. The Trump administration slashed funding for the OFR and the FSOC, and scrapped efforts to subject systemically important non-bank institutions to added scrutiny. The Fed allowed – and is still allowing – the largest banks to deplete their capital by paying out money to shareholders. Stress tests merit little confidence. The latest round offered only a broad sense of banks’ vulnerability to the current crisis, with no information on individual institutions. Also, just this week, regulators completed a gutting of the Volcker Rule and further eased requirements aimed at maintaining banks’ resilience.
Preparing for the next crisis will require fixing some fundamental weaknesses. For one thing, the US should stop subsidising debt. Time and again, crises have demonstrated that excessive leverage makes economic shocks more damaging. Yet the government still encourages it – for example, by providing tax breaks for interest on mortgage loans and corporate borrowing, and by providing an almost unlimited backstop for the short-term debts of financial institutions. Eliminating or constraining such preferences would make the whole economy more resilient.
Officials must also address some more immediate vulnerabilities. The Fed should encourage banks to pause dividends and accumulate equity, and prepare for an emergency round of rigorous stress tests. The Treasury should reactivate the OFR and the FSOC to help ensure losses on leveraged loans don’t trigger more widespread contagion, insurers and large hedge funds don’t become weak links and mortgage markets keep functioning.
The 2008 financial crisis was particularly damaging in the way it undermined people’s faith in a political establishment that proved woefully unprepared. By taking responsible steps now, policymakers can ensure the coronavirus pandemic doesn’t bring about a repeat.
* Bloomberg
RESULTS
2pm: Maiden Dh 60,000 (Dirt) 1,400m. Winner: Masaali, Pat Dobbs (jockey), Doug Watson (trainer).
2.30pm: Handicap Dh 76,000 (D) 1,400m. Winner: Almoreb, Dane O’Neill, Ali Rashid Al Raihe.
3pm: Handicap Dh 64,000 (D) 1,200m. Winner: Imprison, Fabrice Veron, Rashed Bouresly.
3.30pm: Shadwell Farm Conditions Dh 100,000 (D) 1,000m. Winner: Raahy, Adrie de Vries, Jaber Ramadhan.
4pm: Maiden Dh 60,000 (D) 1,000m. Winner: Cross The Ocean, Richard Mullen, Satish Seemar.
4.30pm: Handicap 64,000 (D) 1,950m. Winner: Sa’Ada, Fernando Jara, Ahmad bin Harmash.
UAE currency: the story behind the money in your pockets
Various Artists
Habibi Funk: An Eclectic Selection Of Music From The Arab World (Habibi Funk)
The specs
Engine: 8.0-litre, quad-turbo 16-cylinder
Transmission: 7-speed auto
0-100kmh 2.3 seconds
0-200kmh 5.5 seconds
0-300kmh 11.6 seconds
Power: 1500hp
Torque: 1600Nm
Price: Dh13,400,000
On sale: now
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Specs
Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
Price: On request
Titanium Escrow profile
Started: December 2016
Founder: Ibrahim Kamalmaz
Based: UAE
Sector: Finance / legal
Size: 3 employees, pre-revenue
Stage: Early stage
Investors: Founder's friends and Family
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THE CLOWN OF GAZA
Director: Abdulrahman Sabbah
Starring: Alaa Meqdad
Rating: 4/5
Other simple ideas for sushi rice dishes
Cheat’s nigiri
This is easier to make than sushi rolls. With damp hands, form the cooled rice into small tablet shapes. Place slices of fresh, raw salmon, mackerel or trout (or smoked salmon) lightly touched with wasabi, then press, wasabi side-down, onto the rice. Serve with soy sauce and pickled ginger.
Easy omurice
This fusion dish combines Asian fried rice with a western omelette. To make, fry cooked and cooled sushi rice with chopped vegetables such as carrot and onion and lashings of sweet-tangy ketchup, then wrap in a soft egg omelette.
Deconstructed sushi salad platter
This makes a great, fuss-free sharing meal. Arrange sushi rice on a platter or board, then fill the space with all your favourite sushi ingredients (edamame beans, cooked prawns or tuna, tempura veggies, pickled ginger and chilli tofu), with a dressing or dipping sauce on the side.
Global state-owned investor ranking by size
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United States
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China
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UAE
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Japan
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Norway
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Canada
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Singapore
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Australia
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Saudi Arabia
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South Korea
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Electric scooters: some rules to remember
- Riders must be 14-years-old or over
- Wear a protective helmet
- Park the electric scooter in designated parking lots (if any)
- Do not leave electric scooter in locations that obstruct traffic or pedestrians
- Solo riders only, no passengers allowed
- Do not drive outside designated lanes
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
Ferrari 12Cilindri specs
Engine: naturally aspirated 6.5-liter V12
Power: 819hp
Torque: 678Nm at 7,250rpm
Price: From Dh1,700,000
Available: Now
The specs
Engine: 3-litre twin-turbo V6
Power: 400hp
Torque: 475Nm
Transmission: 9-speed automatic
Price: From Dh215,900
On sale: Now
The specs
AT4 Ultimate, as tested
Engine: 6.2-litre V8
Power: 420hp
Torque: 623Nm
Transmission: 10-speed automatic
Price: From Dh330,800 (Elevation: Dh236,400; AT4: Dh286,800; Denali: Dh345,800)
On sale: Now
match info
Manchester United 3 (Martial 7', 44', 74')
Sheffield United 0
Cricket World Cup League 2 Fixtures
Saturday March 5, UAE v Oman, ICC Academy (all matches start at 9.30am)
Sunday March 6, Oman v Namibia, ICC Academy
Tuesday March 8, UAE v Namibia, ICC Academy
Wednesday March 9, UAE v Oman, ICC Academy
Friday March 11, Oman v Namibia, Sharjah Cricket Stadium
Saturday March 12, UAE v Namibia, Sharjah Cricket Stadium
UAE squad
Ahmed Raza (captain), Chirag Suri, Muhammad Waseem, CP Rizwan, Vriitya Aravind, Asif Khan, Basil Hameed, Rohan Mustafa, Kashif Daud, Zahoor Khan, Junaid Siddique, Karthik Meiyappan, Akif Raja, Rahul Bhatia
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The%20specs
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Paatal Lok season two
Directors: Avinash Arun, Prosit Roy
Stars: Jaideep Ahlawat, Ishwak Singh, Lc Sekhose, Merenla Imsong
Rating: 4.5/5
When is VAR used?
• Goals
• Penalty decisions
• Direct red-card incidents
• Mistaken identity
The specs
Engine: 3.8-litre twin-turbo flat-six
Power: 650hp at 6,750rpm
Torque: 800Nm from 2,500-4,000rpm
Transmission: 8-speed dual-clutch auto
Fuel consumption: 11.12L/100km
Price: From Dh796,600
On sale: now
The biog
Favourite car: Ferrari
Likes the colour: Black
Best movie: Avatar
Academic qualifications: Bachelor’s degree in media production from the Higher Colleges of Technology and diploma in production from the New York Film Academy
Results
5.30pm: Maiden (TB) Dh82,500 (Turf) 1,400m; Winner: Mcmanaman, Sam Hitchcock (jockey), Doug Watson (trainer)
6.05pm: Handicap (TB) Dh87,500 (T) 1,400m; Winner: Bawaasil, Sam Hitchcott, Doug Watson
6.40pm: Handicap (TB) Dh105,000 (Dirt) 1,400m; Winner: Bochart, Fabrice Veron, Satish Seemar
7.15pm: Handicap (TB) Dh105,000 (T) 1,200m; Winner: Mutaraffa, Antonio Fresu, Musabah Al Muhairi
7.50pm: Longines Stakes – Conditions (TB) Dh120,00 (D) 1,900m; Winner: Rare Ninja, Royston Ffrench, Salem bin Ghadayer
8.25pm: Zabeel Trophy – Rated Conditions (TB) Dh120,000 (T) 1,600m; Winner: Alfareeq, Antonio Fresu, Musabah Al Muhairi
9pm: Handicap (TB) Dh105,000 (T) 2,410m; Winner: Good Tidings, Antonio Fresu, Musabah Al Muhairi
9.35pm: Handicap (TB) Dh92,500 (T) 2,000m; Winner: Zorion, Abdul Aziz Al Balushi, Helal Al Alawi
The specs
Engine: 4.0-litre flat-six
Torque: 450Nm at 6,100rpm
Transmission: 7-speed PDK auto or 6-speed manual
Fuel economy, combined: 13.8L/100km
On sale: Available to order now
Three ways to get a gratitude glow
By committing to at least one of these daily, you can bring more gratitude into your life, says Ong.
- During your morning skincare routine, name five things you are thankful for about yourself.
- As you finish your skincare routine, look yourself in the eye and speak an affirmation, such as: “I am grateful for every part of me, including my ability to take care of my skin.”
- In the evening, take some deep breaths, notice how your skin feels, and listen for what your skin is grateful for.
Killing of Qassem Suleimani
More from Rashmee Roshan Lall
Tips to stay safe during hot weather
- Stay hydrated: Drink plenty of fluids, especially water. Avoid alcohol and caffeine, which can increase dehydration.
- Seek cool environments: Use air conditioning, fans, or visit community spaces with climate control.
- Limit outdoor activities: Avoid strenuous activity during peak heat. If outside, seek shade and wear a wide-brimmed hat.
- Dress appropriately: Wear lightweight, loose and light-coloured clothing to facilitate heat loss.
- Check on vulnerable people: Regularly check in on elderly neighbours, young children and those with health conditions.
- Home adaptations: Use blinds or curtains to block sunlight, avoid using ovens or stoves, and ventilate living spaces during cooler hours.
- Recognise heat illness: Learn the signs of heat exhaustion and heat stroke (dizziness, confusion, rapid pulse, nausea), and seek medical attention if symptoms occur.