COVID-19 is by far the most important year for the world. Despite the fact that the whole world was operating under exceptional conditions, during multiple lockdowns, everything has changed to a great extent, including the way European secondary banking sector operates. Second level banks, also known as investment banks are financial institutions that offer services such as: - deposit accounts, such as savings accounts; - loans, such as personal loans, home loans (mortgages) etc.; - credit cards, with very competitive interest rates; - foreign exchange services, so that their customers are able to make transactions in various currencies. Some of the consequences of COVID-19 to the secondary banking sector in Europe are discussed below. Decrease in revenue and instability in the market COVID-19 has resulted in a significant decrease in all economic activity because of market instability, and fluctuations in the stock market. COVID-19 has caused many businesses to close and many others to operate at a much lower capacity than usual, thus resulting in many investment banks in Europe facing a drop in their income. Additionally, due to the volatility in all financial markers, causing significant uncertainty and disruption, many investors have pulled back from these markets, causing a decline in liquidity, and therefore affecting the way secondary banks manage their institutions. [1] Increased credit risk During the pandemic, many businesses and individuals have faced financial difficulties, which affected their efforts to pay off their debts. Many of them had a lower income, or lost their job, or became redundant. This influenced an increase in problem loans, as well as the non-payment of loans, which ultimately had a negative impact on the secondary banking sector by increasing their credit risk, exposing some of them to losses, as they may have sometimes been forced to write off loans which cannot be repaid by the customers facing financial difficulties. [1] Consumer behavior changes With the cost of living crisis, many people have become very cautious regarding their finances and where they spend their money, with an attitude to save, rather than spend. The direct consequences of this are the decrease in demand for credit and other financial products, which has significantly impacted secondary banks that rely on these products for their revenue. Regulatory changes The governments around Europe have implemented measures in order to support businesses and individuals during the pandemic, including the secondary banking sector too. Some changes include: - Loan payment deferrals, where the regulators have allowed banks to offer deferrals for the loan payments coming from customers who have been affected by the pandemic. This provides relief to the borrowers struggling to pay off their loans as they might have been impacted by redundancies at work, job losses, or reduced incomes. - Easing of liquidity requirements for banks, to allow them support the economy during the pandemic. - Dividend payment cancellations for some banks, in order to ensure that banks are able to retain their capital, in order support lending activities. [2] [3] These regulatory changes have supported consumers and banks, however, they have been another challenge for the secondary banking sector, due to the need to quickly adapt to new regulations. Changes in lending practices Many second-level banks were forced to tighten their lending criteria, in order to reduce their exposure to risk, making it more difficult for borrowers to obtain credit, especially the ones which could have been seen as high risk. Risks were mitigated by assessing borrowers using data analytics for their creditworthiness, in order to also allow the banks make more accurate lending decisions. [4] Remote work Due to the social distancing requirements and lockdowns across Europe, remote work has been inevitable. This allowed the institutions to continue operating, however they were faced with other challenges, such as cybersecurity risks, less productivity and communication challenges. A lot of work at a very short time was also done to improve online customer experiences, which was also taken forward after the pandemic too.