The vaccines are out, but COVID-19 continues to wreak havoc on the broader world economy—and this is not expected to be resolved in the near future. While financial markets are again near their peak valuations and the private equity industry sits on record dry powder, many of the industries capital markets firms invest in may now be facing unprecedented challenges and potential bankruptcies.

This crisis presents capital markets enterprises with an opportunity to grow revenues by offering new capital solutions that also address important societal needs, as well as adapt their operating models to finally address perennial cost structure issues.

Looking at the current scope of responses from governments and the performance of companies of different sizes over the last months should give us enough data to forecast how a looming credit crisis could play out. We anticipate it might move through three phases.

While some parts of the world are still in phase 1, other parts are in phase 2 because there weren't enough resources to complete phase 1 or government stimulus is running dry.

A constructive response to this challenge could help redefine the public perception of the capital markets for years to come and could also provide new potential sources of return for yield-starved investors. But what do firms need to do?

COVID-19 has made it impossible for firms to maintain the status quo. It’s clear that innovation is a precondition not just for profitability but for survival. At this moment, there’s a need for new products that meet the requirements of small- and medium-sized business leaders who increasingly need help from capital markets.

Capital markets firms are facing unprecedented challenges, while at the same time liquidity from global central banks is providing markets with stability. Even during a global recession, companies in the securities industry have some cushion to improve their operating models.

This is a moment where your capital markets team can take bold steps. It’s also a period where the industry is transforming itself. Innovations which can create revenue or cut costs are a necessity. Complacency is not.