Limiting the COVID-19 economic risk
via Corona Swaps

Helping preserve the things we love in life

Watch the video to see how Corona Swaps work

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The coronavirus is changing our world and everyday life.

Travel, eating out, public events… everything we love has been and will continue to be impacted.

And yes, that includes the lending economy: the wellspring that sustains all of these things and many more aspects of our society.

We need that wellspring and circulation of capital now more than ever to heal the economy.

In this video, we explain an approach that can help to control and combat the economic challenges of COVID-19 using what we call a “Corona Swap”.

How can we manage the economic risk created by COVID-19?

The goal must be to prevent the risk attributable to the coronavirus from triggering a domino effect, which could lead to a bank crisis – ultimately wiping out so many of the things we love in life, for the foreseeable future.

Every loan consists of funding costs, the default risk, the operational costs and the earnings of the bank. Taken together, these factors translate into the interest rate that a borrower has to pay.

We now have an additional black swan risk element in all outstanding loans: a so-called “corona risk”. No bank or company could have anticipated or avoided this risk.

As a result of the pandemic, many companies also now need new loans to survive, but banks cannot price the corona risk – firstly, because it still is partially unmeasurable and secondly, because it is incredibly high in some industries.

Many governments have implemented extensive economic support programmes, some of which guarantee up to 100% of the loans granted, risking overly generous risk checks. Others have launched programmes where part of the risk remains with the bank – but even a part of a difficult loan remains a difficult investment for a bank. And both routes undeniably come with systemic risks.

The Corona Swap solution

For each loan, we need to separate the corona risk from the other inherent economic risks. The corona risk element needs to be carried as a whole by society. Society will end up carrying the effects of a systemic collapse in any case, so let’s take the wiser and more sustainable path by clearly delineating which risk is attributable to the coronavirus COVID-19 and which would be present under normal circumstances.

Using cutting-edge data technology and a unique setup that enables credit risk to be seamlessly transferred, CrossLend can help: identifying and separating the corona risk element from the remaining part of the loans. The government can then shoulder the corona risk element – preserving our banks along with so many of the things we enjoy in life.