Yale School of Management

Posts by Analyses of Specific Intervention Types

Easing Liquidity Regulations to Counter COVID-19

April 27, 2020

Many countries are easing liquidity regulations to help banks get cash to their customers and to prevent liquidity shortages from spreading across financial markets. Countries are addressing liquidity shortages using two main tools: the liquidity coverage ratio (LCR), which most developed countries implemented in recent years as part of the Basel III agreements, and the more traditional reserve requirement ratio.

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Governments Provide Financial Regulatory Relief

April 22, 2020

The COVID-19 crisis has led governments across the world to temporarily ease the operational burden of  supervisory and regulatory activities on the financial institutions they regulate. These regulatory relief efforts can be broken down into three major categories: 

  1. Reducing supervisory activities such as stress tests and bank examinations. 
  2. Delaying the implementation of new rules or laws. 
  3. Reducing reporting requirements.
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Government Support to Individuals and Households During Crises

April 20, 2020

Many countries are adopting programs to provide support to individuals in response to the COVID-19 pandemic, which has entailed unprecedented government-directed curtailment of economic activity. These programs are designed to provide cashflow support for individuals and households who may be struggling due to economic uncertainty and hardship. Measures to support individuals vary and either enhance cashflows or decrease required expenses. In the former category, countries have adopted measures to provide enhanced income support to the unemployed, direct payments to individuals, and favorable access to retirement savings. Tax cuts and filing extensions are examples of the latter. 

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Countries Ease Bank Capital Buffers

April 16, 2020

Countries around the world are easing bank capital requirements to help banks absorb losses and to allow them to maintain the flow of credit during the COVID-19 crisis. 

Most of these measures involve the Basel III capital standards that global regulators agreed to implement after the 2007-09 financial crisis. Thanks to Basel III and like measures, banks across the world have substantially more capital than they had heading into that crisis. However, the current crisis threatens to quickly eat into those capital cushions. Banks are already reporting substantial credit losses and growing balance sheets, as they meet existing commitments and extend new loans. Easing capital standards today is a form of macroprudential policy, because regulators’ focus is on maintaining the health of the financial system as a whole. 

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Residential Mortgage and Rent Relief During Crises

April 16, 2020

Cash flows around the world have dropped dramatically as more governments require non-essential businesses to close and  individuals to stay at home in order to fight the COVID-19 pandemic. In a fairly short time, such actions have led to massive layoffs and job losses. In the United States, for example, the country has swung from historically low unemployment levels to historically high numbers of claims for unemployment benefits; similar effects can be observed in other countries.  As a consequence, individuals are experiencing, and are expected to continue to experience for some time, difficulty in paying their housing costs. Whether mortgage or rent, housing is usually the largest fixed cost for households and many governments have responded by announcing various packages to provide relief. This post begins by examining the fundamental challenge presented by the need to provide residential expense relief on a grand scale. It then details multiple programmatic interventions utilized in crises past and present. Finally, this post provides some key takeaways to consider when implementing residential expense relief policies.

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Countering COVID-19 with Countercyclical Bankruptcy Policy

April 9, 2020

Governments are temporarily tilting their bankruptcy laws in favor of debtors to help businesses survive the crisis. Some have taken advantage of the crisis to propose permanent pro-debtor bankruptcy reforms. 

Many countries have found that their current bankruptcy laws do not offer enough relief to debtors in these difficult times. This even applies to countries with pro-debtor systems, like Chapter 11 in the United States, that aim to avoid liquidations and restructure all companies that are viable as going concerns. Due to COVID-19, many otherwise viable businesses see themselves without a strategy for recovery until social-distancing measures end. Policymakers fear that this will force countless businesses to liquidate, leaving even more workers unemployed. So many bankruptcies could overwhelm bankruptcy courts, drawing out an already painful process. 

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Large-Scale Assistance Programs for Small Businesses

April 8, 2020

With the economic effects of the coronavirus pandemic likely to be particularly devastating for small and medium-sized enterprises (SMEs), countries around the globe are faced with the task of determining how best to support such businesses.  A number of potential intervention types exist and are already being deployed, many of which have also been used in response to earlier financial crises. This post begins by describing the fundamental challenge: to provide SME assistance quickly and on a large scale.  It next examines each of the primary tools governments can use to extend assistance to SMEs on such a scale. In so doing, it provides examples of the use of these tools drawn from the current situation and previous crises. The post then presents a detailed analysis of the framework for SME assistance established in the United States by the recently adopted CARES Act as one example of how interventions can be combined to support SMEs.  It concludes by offering some takeaways about why certain SME assistance interventions may be preferable to others in given contexts.

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Programs Support Individuals through Direct Payments and Tax Cuts

April 8, 2020

During this COVID-19 crisis, many countries have provided cash directly to individuals and households through direct payments and tax cuts. Though programs differ across countries, some key considerations for these temporary income support programs include:

  1. Channel: What is the channel for providing the benefits? 
  2. Size: What is the monetary value of the benefits provided?
  3. Eligibility: Who is eligible to receive the benefits?  
  4. Length: What is the timeframe for the benefits? 
  5. Administration: How does the individual receive the benefits?
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Programs Support Individuals through Tax-Deadline Extensions and Penalty Waivers

April 8, 2020

Several governments have extended the payment deadline for 2019 income taxes or adopted waivers for late-payment penalties as measures to support household income. Among the OECD’s 36 member countries, more than half have implemented such measures. In essence, both policies achieve the same objective which is to relieve households from the burden of a pending income tax payment while affected by the current adverse economic environment. 

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Programs Support Individuals through Unemployment Insurance and Wage Subsidies

April 8, 2020

Governments are providing extraordinary relief to the unemployed during the COVID-19 pandemic. Countries are both extending existing coverage and establishing temporary new income-support programs to help individuals who have been furloughed, lost their jobs, or face an imminent layoff. Key considerations for these programs include:

  1. Channel: What is the channel for providing the benefits? 
  2. Size: What is the monetary value of the benefits provided?
  3. Private-sector Funding: Do employers share the cost?
  4. Eligibility: Who is eligible to receive the benefits?  
  5. Length: What is the timeframe for the benefits? 
  6. Administration: How does the individual receive the benefits?
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