Greater resilience of major banks at the core of the financial system has allowed the system to absorb, rather than amplify, the economic shock from the pandemic. But as a side-effect, risks in the financial system moved from the banking sector to the non-bank financial sector. This is what I have previously referred to as the ‘waterbed effect’.
It is testament to the prudent macroeconomic policies and the strengthening of banking supervision that the bank has put in place. Notwithstanding, it’s important to note the second round effects of the economic crisis due to external shocks which has affected both the current and capital accounts and reduced growth in aggregate demand must be felt.