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Economies have fallen back sharply but banks have not had to recognize bad loans as government support and repayment moratoriums have covered a quarter of all outstanding loans for companies and households. As a result there is a strange crisis in which defaults have not happened. Banks have not had to recognize bad loans. The question is what will happen once this government support and other support ends.

The European Central Bank says bad loans in eurozone could go as high as 1.4 trillion euros or $1.7 trillion, if the economies face further setbacks in the second wave of the coronavirus. European government support has been more generous than the U.S. In Italy over 25% of loans to businesses and 15% to households, totaling 300 billion euros were given payment holidays, according to Scope Ratings.

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Countries dependent on remittances of workers overseas are hit hard by the coronavirus. This WSJ report shows the situation in Central America which gets $24 billion in remittances form its workers in the U.S. E Salvador gets $5.6 billion in remittances. This is down by 40% in April central bank numbers show, because of jobs lost in the U.S. by workers from El Salvador who migrated to the U.S.  Unemployment rate for Hispanics in April was 20%. El Salvador depends on remittances more than any other Latin American country as remittances are higher than exports. In some rural areas this means older residents have no money to buy food and depend on charities for food supplies.

Today the situation in India, Pakistan and Bangladesh, and other countries in Asia which depend on remittances of overseas workers is also leading to a difficult time for families dependent for such support.

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This editorial in the WSJ commends Congress for the $2 trillion U.S. aid package for households, small business and large corporations to keep workers on payroll, and aid to hospitals. It also commends the Federal Reserve for swift action to maintain liquidity in all corners of money markets. It was important to prevent a run on money market funds and municipal bond funds. The U.S. Senate bill adds $454 billion for Treasury that can support further Fed action if needed. This has also resulted in a recovery in the stock markets. The editors of WSJ caution Treasury from intervening too far up the risk curve to help companies that had overleveraged themselves with risk before coronavirus hit. It makes clear that the U.S. central bank the Fed should only offer liquidity against good collateral to companies that were healthy before the shock. As president  Trump never tires of telling listeners to his daily briefings from the Brady room in the White House- Boeing and the airlines were healthy before coronavirus hit. It was not their fault that coronavirus hit so suddenly. These companies deserve government help, says the president. By making the distinction between otherwise healthy companies and companies that overleveraged themselves on their own, the Fed, Treasury, and the U.S. government can get more bang for the buck. The WSJ editorial also says there is a bit of good news in the behaviour of politicians, media and the public in the way they are ignoring the trivial politics and self-centred behaviours, including indiscriminately being critical of the president, and focusing on the important matters that affect all our lives.  ...

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The U.S. Fed, America's central bank, barrs bank buyback of shares and limits dividend payouts to quarterly profit. The Fed does this as it warns banks they could sustain heavy losses of $700 billion for soured loans if the economy is slow to recover over several quarters, and unemployment remains high. The Fed's latest stress test for banks included the impact of the coronavirus epidemic. At this time the Fed says banks are healthy and this is protective action to keep the banks in safety.

Another sign of the changes taking place in finance and banking- swift action by the U.S. central bank leadership to stop early any potential improper behaviour of banks to do debt buybacks or dividend payout not meeting rules related to profit.