Yale School of Management

Posts by Analyses of Specific Interventions

Governments Provide SMEs with Relief for Non-Wage Fixed Costs

June 8, 2020
As countries adopt measures to respond to the ongoing COVID-19 crisis, many are providing support to businesses for fixed costs. Fixed costs are those that do not change with the amount of product or services a firm provides. Though a small business may be able to decrease variable costs in response to diminished demand or a government-mandated suspension of operations, small and medium-sized enterprises (SMEs) still face the ongoing burden of fixed costs. Continue reading “Governments Provide SMEs with Relief for Non-Wage Fixed Costs”

Countries Propose Catastrophe Insurance Through Public-Private Partnerships

June 2, 2020
On May 26, Congresswoman Caroyln Maloney introduced the Pandemic Risk Insurance Act of 2020 (PRIA). The PRIA would provide a framework for insurers to supply business interruption insurance to businesses affected by the COVID-19 pandemic. Insurance companies that choose to participate would offer pandemic coverage to businesses and, should aggregate insurance industry losses exceed $250 million, the federal government would cover most of the  losses. Continue reading “Countries Propose Catastrophe Insurance Through Public-Private Partnerships”

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. Continue reading “Easing Liquidity Regulations to Counter COVID-19”

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:  Reducing supervisory activities such as stress tests and bank examinations.  Delaying the implementation of new rules or laws.  Reducing reporting requirements. Continue reading “Governments Provide Financial Regulatory Relief”

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.  Continue reading “Government Support to Individuals and Households During Crises”

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.  Continue reading “Countries Ease Bank Capital Buffers”

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. Continue reading “Residential Mortgage and Rent Relief During Crises”

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.  Continue reading “Countering COVID-19 with Countercyclical Bankruptcy Policy”