COVID-19: Maintaining Financial Stability

The COVID-19 pandemic represents the biggest test of the global financial system since the 2008 financial crisis. The financial system faces the dual challenge to sustain the flow of financing to the real economy and preserving financial resilience.

The COVID-19 shock has put the global financial system under considerable strain. While the core of the financial system entered the crisis more resilient, the COVID-19 shock in March led to severe liquidity stress in the system.

Global financial conditions have overall continued to ease on the back of the decisive policy action taken earlier this year since the last G20 meeting in July. However, risks to global financial stability remain elevated.

Deteriorating credit quality of non-financial borrowers poses risks to the financial sector. The intensification of the pandemic, together with the resulting necessary government containment measures as well as greater uncertainty about the duration of the pandemic, is increasing vulnerabilities in the non-financial sector.

FSB members assess financial risks and vulnerabilities related to COVID-19 on an ongoing basis. The FSB reports regularly to the G20 on the financial stability implications of, and policy measures taken in response to, the pandemic.

Policy measures taken

FSB members have adopted a range of measures to ensure that the financial system is able to respond to the pandemic. Actions fall into five broad categories:

1. Lending and credit support – including actions to ensure that financial institutions are able to continue lending, such as loan guarantee schemes, restructuring of loan terms, or the release of countercyclical capital buffers and encouragement to use capital and liquidity buffers.
2. Funding and liquidity support – including actions by authorities to support funding markets in domestic currency, for instance through bank and market funding facilities or asset purchases, as well as facilities that provide access to foreign currency.
3. Market functioning – steps by markets authorities to support the operations of markets, including enhanced market surveillance or volatility control mechanisms.
4. Operational and business continuity of financial institutions – including engagement with financial institutions to ensure that they have robust measures in place so they can continue to maintain their activities.
5. Authority business continuity measures – actions taken by authorities to ensure the continuity of their supervisory and regulatory activities.

The FSB report COVID-19 pandemic: Financial stability implications and policy measures taken – Report to the G20, published in July includes an overview of the types of measures taken by FSB member jurisdictions.

FSB principles

The FSB’s response to COVID-19 is underpinned by five principles:

• to monitor and share information on a timely basis to assess and address financial stability risks from COVID-19;
• to recognise and use the flexibility built into existing financial standards to support our 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 Principles have guided national responses to COVID-19 to date. The international standards adopted through the G20 reforms have discouraged unilateral actions that would distort the level playing field and lead to market fragmentation. Most measures taken by FSB members to deal with the COVID-19 shock have used the flexibility available in international standards by design, including in the form of system-wide and firm-specific buffers. In a few cases individual temporary measures went beyond the flexibility of those standards, in order to respond to extreme financial conditions and provide operational flexibility to financial institutions.

Cooperation and coordination

SSBs are continuing to closely monitor developments and have all announced policy and operational measures aimed at supporting these goals. The FSB is actively coordinating with SSBs on issues that cut across sectors. The FSB and SSBs are:

• sharing information on, and considering whether there are areas for collaboration to promote the effectiveness of, the steps authorities and the private sector are taking to temporarily mitigate lending terms for borrowers.
• coordinating steps to support the business continuity of financial services firms, both through facilitating remote working and enabling those essential staff who need to work onsite to do so.
• coordinating their responses to enable firms and authorities to focus their resources on COVID-19 response by delaying existing deadlines for implementation of international reforms and of other international regulatory initiatives, where this can be done in a way that remains consistent with the underlying objectives of the reforms.

COVID-19 statements by the G20, FSB and standard-setting bodies

G20 Leaders

• Statement published on 26 March 2020

G20 Finance Ministers and Central Bank Governors

• Communiqué published on 15 April 2020
• Statement published on 31 March 2020
• Statement published on 23 March 2020
• Statement published on 6 March 2020

Financial Stability Board

• FSB Chair’s letter published on 6 April 2021
• FSB Chair’s letter published on 25 February 2021
• FSB Chair’s letter published on 17 November 2020
• Press release published on 17 November 2020
• FSB Chair’s letter published on 14 October 2020
• Report to the G20 published on 15 July 2020
• FSB Chair’s letter published on 15 July 2020
• Press release published on 26 May 2020
• Call with trade associations published on 15 April 2020
• Report to the G20 published published on 15 April 2020
• FSB Chair’s letter published on 14 April 2020
• Statement published on 2 April 2020
• Statement published on 20 March

Basel Committee on Banking Supervision

• Statement published on 17 June 2020
• Statement published on 3 April 2020
• Statement published on 3 April 2020
• Statement published on 27 March 2020
• Statement published on 20 March 2020

International Association of Insurance Supervisors

• Statement published on 3 July 2020
• Statement published on 7 May 2020
• Statement published on 27 March 2020

International Accounting Standards Board (IFRS Foundation)

• Statement on IFRS 9 published on 27 March 2020
• Statement on IFRS work published on 27 March 2020

International Organization of Securities Commissions

• Statement published on 29 May 2020
• Statement published on 8 April 2020
• Statement published on 3 April 2020
• Statement published on 25 March 2020