On the one hand, the hit to capital could be larger if firms’ risk appetite remains subdued or if the debts accumulated during the crisis act as a drag on investment. For example, in the UK Office for Budget Responsibility’s (OBR) downside  scenario, scarring reduces output by as much as 6%. 20  Baldwin and Freeman (2020). 20  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  20  On the other hand, it is possible investment and the capital stock rebounds faster than in a typical recession – for example, if there is catch-up investment or if firms seize the opportunity created by the Covid crisis to improvement their digital estates and digital skills. This would reduce, but not eliminate, any scarring. The balance of these effects on investment is something I will discuss in a future lecture. (d) Fiscal Policy After the global financial crisis, the major tool of macro-economic demand management was monetary policy, which was loosened significantly in most countries. By contrast, fiscal policy in most countries was loosened only modestly and in some, including the UK, was tightened. This fiscal response added to the burden placed on monetary policy. The fiscal policy response to the Covid crisis has been very different. Although monetary policy has once again been loosened, fiscal policy has played the frontline role in stabilising the economy. Both the  fiscal/monetary mix, and the scale of the all-in supporting policy response, has as a result far exceeded that following the global financial crisis.
Companies should think carefully where they wish to position themselves in the long term and have a clear plan on how to get there. There might be companies that may aspire to grow and be major providers in their own lines of business. There might also be companies that want to position themselves as a complete solution providers or becoming principals with large agent networks. And then, there are companies that have been very successful as agents, building strong partnerships with their principals while keeping operating costs low. In fact, our engagements with the industry reveal that many agents are doing better than before in terms of business flows and profits. The regulatory framework in Malaysia is specifically tailored to accommodate all these options, supported by operating guidelines that is efficient and proportionate to risk. A company that takes on more risk and business responsibility must be prepared to meet the higher requirements that reflect the scope and levels of complexity of the business, including  2  BIS central bankers’ speeches  the kind of management team that needs to be in place, the board’s profile and level of engagement and their ability to provide strategic leadership to the company. Companies also need to consider changes to processes as well, as investments in critical systems is important to support operations over the long term. Most importantly, there must be a clear strategy of execution and an honest assessment of the company’s ability to implement such a plan.