On the eve of the virtual meeting of the G20 'Finance', the Financial Stability Board (FSB), the financial watchdog of the world's 20 major economies, sent a letter, on Tuesday 14 April, to the Finance Ministers and Central Bank Governors on COVID-19’s impact on the markets, warning in particular about the vulnerabilities of non-bank finance.
The letter begins by highlighting the twin challenge that the global financial system will have to confront in the face of COVID-19: a significantly increased need for credit throughout the global economy and marked uncertainty about the value of a wide range of assets.
"While the initial wave of extreme volatility appears to have ebbed somewhat following substantial support from central banks in core markets, markets remain under great strain and are still highly volatile and in some cases illiquid", the FSB points out.
In particular, it underlines the impact of COVID-19 on credit markets and investment funds, which has highlighted the potential vulnerabilities of the non-bank financial intermediation sector, which it says is becoming increasingly important.
"It is more important than ever to ensure that we can reap the benefits of this dynamic part of the financial system without risking financial stability", the letter said. To this end, the FSB has formed a group of senior officials to make proposals in this area.
The FSB is also continuing its analysis of market vulnerabilities and the capacity of the financial system to finance the real economy. These assessments will enable policymakers to better anticipate and deal with the possible additional impact of the crisis, it says.
The letter further notes that while the FSB's current focus is on market vulnerabilities and immediate responses, the impact of the measures taken and their effectiveness will need to be assessed at a later stage in order to "give a strong basis for deciding on when, and how, to return to more normal operations in the financial sector".
See the letter: https://bit.ly/3b8fM5b (Original version in French by Marion Fontana)