In April 2020, the G20 finance ministers and central bank governors committed to follow the five principles set out in the FSB’s report on COVID-19. They reiterated their commitment to share information on a timely basis to assess and address financial stability risks from COVID-19, and to coordinate on the unwinding of the temporary measures.  Against this background, the Presidency of the G20 asked the FSB to report to the G20 finance ministers and governors in April 2021 on policy considerations relating to the unwinding of support measures.

In view of the current situation, most of the COVID-19 policy support measures remain in place, and their withdrawal is typically not imminent. Nevertheless, policymakers need to form their views on whether, when and how to extend, amend or unwind their support measures. The report discusses the extent to which measures have been unwound so far and the matters to which policymakers should have regard when considering whether to extend, amend or end their economic and financial support measures. Its purpose is to assist G20 members and other policymakers by providing a benchmark and drawing attention to practices in FSB member jurisdictions.

The report notes that withdrawal of support measures before the macroeconomic outlook has stabilised could be associated with significant immediate risks to financial stability. At the same time, financial stability risks may gradually build if support measures remain in place for too long. On balance, most authorities believe that premature withdrawal of support could inflict more damage to the economy than maintaining support for too long.

Authorities have a number of options for managing these trade-offs and may follow a flexible, state-contingent approach, adjusting and withdrawing gradually, by:

  • Ensuring that measures are targeted to those most affected.

  • Requiring beneficiaries to opt in to receive support rather than automatically.

  • Making the terms on which support is provided progressively less generous.

  • Sequencing the withdrawal of support measures rather than withdrawing all at once.

Clear, consistent and timely communication about policy intentions can help reduce the costs associated with withdrawal of support, not least by reducing the risk of surprises and abrupt adjustments in financial markets.

The report also notes the importance of a resilient and well-functioning financial system as a precondition for smooth adjustment as public support is phased out. In addition, further work is needed to understand the risk of harmful cross-border and cross-sector spillovers, including possible feedback loops, and options to mitigate the risk.

FSB members have committed to sharing information and returning to full alignment with global standards in order to minimise the risk of harmful market fragmentation. The FSB will continue to support international coordination on the unwinding of COVID-19 support measures.