The Financial Stability Board (FSB) has warned the G20 nations to carefully monitor the COVID-19 pandemic and how it affects the global economy.
FSB issued the warning at the same time as it published a report delivered to the G20 members to boost and to coordinate their response to the contagion. But while the situation is dire, the international body noted that there were still cause for optimism.
“The COVID-19 pandemic represents the biggest test of the post-crisis financial system to date,” the FSB said in a statement. “The global financial system faces the dual challenge to sustain the flow of credit amidst declining growth and manage heightened risks. 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.”
The international body added that, as the crisis continues, it will be closely monitoring the resilience of key nodes in the financial system that are critical for financial stability.
Those nodes included the ability of financial institutions and markets to channel funds to the real economy; the ability of market participants around the world to obtain US dollar funding, particularly in emerging markets; the ability of financial intermediaries, such as investment funds, to effectively manage liquidity risk; and the ability of market participants and financial market infrastructures (including central counterparties) to manage evolving counterparty risks.
It encouraged authorities in the G20 to monitor and share information on a timely basis to assess and address financial stability risks from the coronavirus, to recognise and use the flexibility built into existing financial standards to support the FSB’s response, to seek opportunities to temporarily reduce operational burdens on firms and authorities, to act consistently with international standards, and not roll back reforms or compromise the underlying objectives of existing international standards; and to coordinate on the future timely unwinding of the temporary measures taken.
The FSB added that it will continue to share information on threats to the financial stability of the world, to keep assessing potential vulnerabilities in order to better understand the impacts of COVID-19, and to help its members coordinate their responses to policy issues.
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