Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Biggest Crisis Test Is Still to Come With Insolvencies, BIS Says

Published 14/09/2020, 12:28
Updated 14/09/2020, 14:36
© Bloomberg. A chain and lock secures an entrance at a Macy's Inc. location temporarily closed in Honolulu, Hawaii, U.S., on Monday, May 11, 2020. Hawaii reports no new virus cases for the first time in nearly two months, the Associated Press reported. Photographer: Marie Eriel Hobro/Bloomberg

© Bloomberg. A chain and lock secures an entrance at a Macy's Inc. location temporarily closed in Honolulu, Hawaii, U.S., on Monday, May 11, 2020. Hawaii reports no new virus cases for the first time in nearly two months, the Associated Press reported. Photographer: Marie Eriel Hobro/Bloomberg

(Bloomberg) -- Policy makers are facing the most economically challenging part of the Covid-19 crisis in avoiding the creation of “zombie” companies, according to the Bank for International Settlements.

Ultra-easy monetary and fiscal support is helping companies avoid a liquidity crunch after the pandemic closed down businesses and demand collapsed. But that stance bears risks longer-term, said Claudio Borio, head of the Basel-based institution’s Monetary and Economic Department.

“There’s a delicate balance to be struck between on the one hand withdrawing it too early, which will obliviously have short-term costs in terms of economic activity, and withdrawing it too late, which will mean that it will not favor necessary structural adjustments,” he said on Monday.

Officials in Europe and the U.S. have unleashed unprecedented easing in response to the Covid-19 outbreak, which has pushed up equity markets even as economies face their deepest recession in decades.

While the liquidity measures have helped companies stay afloat, there are concerns they may also be creating a swathe of uncompetitive firms that hold back investment and innovation.

“The real challenge is to distinguish between viable and non-viable firms, which, given the uncertainty about future demand patterns, is not straightforward,” Borio said.

©2020 Bloomberg L.P.

© Bloomberg. A chain and lock secures an entrance at a Macy's Inc. location temporarily closed in Honolulu, Hawaii, U.S., on Monday, May 11, 2020. Hawaii reports no new virus cases for the first time in nearly two months, the Associated Press reported. Photographer: Marie Eriel Hobro/Bloomberg

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.