In this letter to the G20 Finance Ministers and Central Bank Governors, FSB Chair Randal K. Quarles, notes that the swift intervention of FSB members in response to the COVID pandemic helped to stabilise markets, but the path of recovery is still uncertain. Significant pricing disconnects between the market and economic forecasts, could result in sudden and sharp repricing. The FSB is maintaining financial stability during the COVID event by:

  • Assessing vulnerabilities during the current crisis. Volatility in markets has decreased but may well return. The FSB has identified a number of priority areas that require further analysis, including, among others, risks related to liquidity stress; the debt burden of non-financial corporates; and effects of credit rating downgrades. The FSB’s monitoring provides essential and near real-time input for policymakers to anticipate and address developing risks in the financial system.
  • Reinforcing resilient non-bank financial intermediation (NBFI). Understanding risk, risk transmission, and policy implications for the NBFI sector is more important than ever. By the G20 Summit this November, the FSB will carry out a holistic review of the market turmoil in March. The FSB has also begun a mapping of the critical connections between the banking and non-bank sectors. This combined work will inform future steps of the FSB in 2021 under the Italian G20 Presidency to improve the resiliency of the NBFI sector while preserving its benefits.
  • Identifying and assessing policy responses. The decisive immediate policy response has laid the ground for effectively containing the economic and financial fallout of the COVID Event. The FSB has been sharing information on policy responses and is identifying indicators to help assess the efficacy of policy actions. The FSB will also help coordinate supervisory and regulatory actions, including to take account of cross-border spillovers and promote a level playing field.
  • Monitoring consistency with standards. Reflecting the FSB’s commitment to agreed-upon financial reforms, it has compiled, in cooperation with standard-setting bodies (SSBs), the COVID Event actions taken by FSB members. This work evaluates the consistency of the member actions with agreed-upon financial reforms and the extent to which the actions have used the flexibility within international standards.
  • Using flexibility in standards and buffer use. Most measures taken by FSB members have used the flexibility built into international standards, including regarding the use of capital and liquidity buffers. The FSB supports the Basel Committee statement that a measured drawdown of buffers is both expected and appropriate during the current period of stress.

The FSB is also evaluating financial post-crisis financial reforms, supporting a smooth transition away from LIBOR and will deliver a roadmap to improve cross-border payments to the G20 in October. The letter was delivered to G20 Finance Ministers and Central Bank Governors ahead of their virtual meeting on 18 July.