Economies have gone on to a war footing: manufacturers are retooling factories to supply the needs of governments, workers are being mobilised and reallocated to areas of shortages. The financial sector must, likewise, adjust to the new reality. Banks will bear a large part of the burden that will come from the economic disruption of the coronavirus pandemic. They will need to support lending to households, businesses and large corporates. To weather the storm, they must build their balance sheets into fortresses and use every means to shore up capital.
The banking sector already serves a quasi-public function. It provides public infrastructure: the money supply and the payment system. And it is intertwined with the state through central banks and deposit insurance. As the 2008 financial crisis revealed, the government will ultimately provide a backstop in the event of a catastrophic failure, even if regulatory changes since then have focused on maximising alternative private-sector safeguards.
This places a strong moral obligation on banks to make themselves as secure as possible through this crisis. That means ensuring funds are used to support lending and not to reward shareholders, many of whom are similarly more interested in the long-term survivability of the companies than a short-term payment. Banks must cancel dividends and share buybacks. A similar argument applies to all companies whose balance sheets are threatened by this crisis.