FSB: COVID-19 Represents Biggest Challenge to Markets Since GFC

The Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, has published a report this Wednesday which sets out the financial stability implications of the coronavirus pandemic and policy measures taken to address them.

According to the international body, COVID-19 represents the biggest test to the financial markets since the global financial crisis (GFC). However, the FSB believes that markets are now more resilient and in a better place to withstand the pandemic as a result of the G20 regulatory reforms.

In particular, the report from the FSB sets out five principles that will promote a rapid and coordinated response to support the real economy whilst maintaining financial stability and minimizing risk.

According to the report, under the five principles, authorities will:

• monitor and share information on a timely basis to assess and address financial stability risks from COVID-19;
• recognize and use the flexibility built into existing financial standards to support our response;
• seek opportunities to temporarily reduce operational burdens on firms and authorities;
• act consistently with international standards, and not roll back reforms or compromise the underlying objectives of existing international standards;
• and coordinate on the future timely unwinding of the temporary measures taken.

“The COVID-19 pandemic represents the biggest test of the post-crisis financial system to date. The global financial system faces the dual challenge to sustain the flow of credit amidst declining growth and manage heightened risks,” the FSB said in its statement today.

“Nevertheless, the global financial system is more resilient and better placed to sustain financing to the real economy as a result of the G20 regulatory reforms in the aftermath of the 2008 global financial crisis.”

FSB is closely monitoring market resilience amid COVID-19

In response to COVID-19, the FSB said today that it is closely monitoring the resilience of key nodes in the financial system, which it says are critical for financial stability. This includes financial institutions and markets being able to channel funds to the real economy, market participants being able to access US dollar funding, the ability of financial intermediaries to manage Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term risk and market participants, and financial market infrastructures to manage evolving counterparty risks.