COVID-19 pandemic: Financial stability implications and policy measures taken – Report to the G20

15 July 2020 | PDF full text (681 KB)

This report, delivered to G20 Finance Ministers and Central Bank Governors for their virtual meeting on 18 July, assesses COVID-related financial stability developments, details policy measures taken and sets out work to assess their effectiveness.

Since the FSB last updated the G20 in April, financial markets have continued to recover from the COVID-19 shock on the back of this decisive policy action. While improving market sentiment has lifted risky asset prices, this may not fully reflect the fact that the pandemic continues and the path of recovery remains highly uncertain. As a result, risky assets remain vulnerable to shifts in the economic outlook.

The report notes that credit provision to the real economy has held up, but lenders face a challenging combination of deteriorating credit quality and rising credit demand. There has been a notable increase in bank lending to non-financial corporates. Capital markets – assisted by determined policy actions – have remained open and enabled firms to raise new and longer-term financing. However, virus containment measures, sharp reductions in supply capacity and falling commodity prices have led to a broad-based reduction in corporate earnings. This, together with relatively high levels of indebtedness and more relaxed underwriting standards in certain market segments in recent years, is weighing on credit quality.

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.

Policy measures taken in response to COVID-19: Number of policy submissions per day
Policy measures taken in response to COVID-19: Number of policy submissions per day

The FSB continues to support international cooperation and coordination on the COVID-19 response underpinned by the FSB principles. The FSB is:

  • Assessing financial risks and vulnerabilities – to support assessments of the appropriateness of financial policy responses and potential adjustments.
  • Information sharing – regularly sharing information on policy responses and has begun supporting domestic assessments of the use of policy measures taken.
  • Coordinating policy responses – the FSB has been coordinating the response to policy issues, including measures that standard-setting bodies (SSBs) may take to provide, or give guidance on, flexibility available to authorities and firms within existing international financial standards. The FSB and SSBs will also coordinate the future timely unwinding of the temporary measures taken as well as addressing any areas where existing policy frameworks have been found wanting.
  • Considering the longer-term implications of the market turmoil in March – this will include a holistic post-mortem of what happened, drawing also on work by the SSBs.

The FSB will provide a further update on member authorities’ and SSBs’ COVID-19 responses, its financial stability risk assessment and its work on the effectiveness of policy responses by November 2020, ahead of the G20 Leaders’ Summit. The report was delivered to G20 Finance Ministers and Central Bank Governors together with a letter from the FSB Chair, Randal K. Quarles.

FSB sets out action to maintain financial stability during COVID

Press enquiries:
+41 61 280 8138
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Ref no: 23/2020

The Financial Stability Board (FSB) today published a letter from the FSB Chair, Randal K. Quarles, to G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on 18 July 2020. The FSB also delivered to the G20 a report on the financial stability implications of, and policy measures taken in response to, the COVID-19 pandemic.

The Chair’s letter sets out a number of areas of focus for the FSB during the COVID Event:

  • 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 letter also emphasises the resolve to continue work the FSB already has begun to strengthen the global financial system, including evaluating financial post-crisis financial reforms, supporting a smooth transition away from LIBOR and developing a roadmap to improve cross-border payments.

The report to the G20 details COVID-related financial stability developments, policy measures taken and work to assess their effectiveness. It draws on the significant FSB work undertaken to assess vulnerabilities, consider policy responses under different recovery scenarios, and note where additional work may be necessary. This report also consolidates the extraordinary policy measures taken across the FSB’s national membership and SSBs to address the financial fallout of the pandemic.

Notes to editors

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Building blocks for a roadmap to enhance cross-border payments: letter to the G20

13 July 2020 | PDF full text (111 KB)

This letter from the FSB Chair, Randal K. Quarles, to the G20, accompanied a report setting out building blocks for a roadmap to enhance cross-border payments. The report, by the Committee on Payments and Market Infrastructures (CPMI), was welcomed by the FSB. The CPMI report sets out the necessary elements to address problems with the high costs, low speed, limited access and insufficient transparency of cross-border payments, highlighted by an FSB report published in April.

The publication of the CPMI report marks the second of a three-stage process, coordinated by the FSB at the request of the G20, to develop a roadmap to enhance cross-border payments. The report was delivered to G20 Finance Ministers and Central Bank Governors ahead of their virtual meeting on 18 July.

The G20 at is February 2020 Finance Ministers and Central Bank Governors meeting asked the FSB to coordinate a three-stage process to develop a roadmap to enhance cross-border payments:

  • Assessment (Stage 1): In its April report the FSB, in coordination with relevant international organisations and standard-setting bodies assessed existing arrangements and challenges.
  • Building Blocks (Stage 2): The Committee on Payments and Market Infrastructures (CPMI) led the work on creating building blocks of a response to improve the current global cross-border payment arrangements. The report sets out areas where further public sector work could assist in moving to an improved cross-border payments system and in public goods or removing unnecessary barriers.
  • Roadmap (Stage 3): Building on the previous stages, the FSB will coordinate, with CPMI and other relevant international organisations and standard-setting bodies, the development of a roadmap to pave the way forward. In particular, the FSB will report to the G20 on practical steps and indicative timeframes needed to do so. The three-stage process will be submitted as a combined report to the G20 in October 2020.

FSB welcomes CPMI report on enhancing cross-border payments

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 22/2020

The Financial Stability Board (FSB) today published a letter to the G20 from the FSB Chair, Randal K. Quarles, welcoming the report published today by the Committee on Payments and Market Infrastructures (CPMI), which sets out building blocks for a roadmap to enhance cross-border payments.

The publication of the CPMI report marks the second of a three-stage process, coordinated by the FSB at the request of the G20, to develop a roadmap to enhance cross-border payments. It sets out the necessary elements to address the challenges of high costs, low speed, limited access and insufficient transparency of cross-border payments, highlighted by the first-stage FSB report published in April. The CPMI report was delivered to G20 Finance Ministers and Central Bank Governors ahead of their virtual meeting on 18 July. The FSB will publish the roadmap, as the third and final stage of this deliverable, in October.

In his letter to the G20 the FSB Chair stresses the FSB’s strong support for the CPMI report’s approach. The report provides elements that can be used flexibly within a roadmap, combining enhancements to the current cross-border arrangements and infrastructures with the exploration of more ambitious yet more uncertain longer-term possibilities. He says: “Enhancing cross-border payments is a multi-dimensional problem, which will require the combined efforts of many public and private sector stakeholders. This is why the commitment of the G20 will be so important to provide impetus and coordination in order that the vision of substantially improved payments arrangements can be achieved.”

Notes to editors

The G20 at is February 2020 Finance Ministers and Central Bank Governors meeting asked the FSB to coordinate a three-stage process to develop a roadmap to enhance cross-border payments:

  • Assessment (Stage 1): In its April report the FSB, in coordination with relevant international organisations and standard-setting bodies assessed existing arrangements and challenges.

  • Building Blocks (Stage 2): The CPMI led the work on creating building blocks of a response to improve the current global cross-border payment arrangements. The report sets out areas where further public sector work could assist in moving to an improved cross-border payments system and in public goods or removing unnecessary barriers.

  • Roadmap (Stage 3): Building on the previous stages, the FSB will coordinate, with CPMI and other relevant international organisations and standard-setting bodies, the development of a roadmap to pave the way forward. In particular, the FSB will report to the G20 on practical steps and indicative timeframes needed to do so. The three-stage process will be submitted as a combined report to the G20 in October 2020.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Supervisory issues associated with benchmark transition: Report to the G20

| PDF full text (3 MB)

This report published by the Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS) concludes that the continued reliance of global financial markets on LIBOR poses clear risks to global financial stability. Transition away from LIBOR by end–2021 requires significant commitment and sustained effort from both financial and non-financial institutions across many jurisdictions. On 1 July the FSB reiterated its view that financial and non-financial sector firms across all jurisdictions should continue their efforts to make wider use of risk-free rates to reduce reliance on IBORs where appropriate and in particular to remove remaining dependencies on LIBOR by the end of 2021.

The report includes insights on remaining challenges to transition based on surveys undertaken by the FSB, the BCBS and the International Association of Insurance Supervisors (IAIS ). It sets out recommendations for authorities to support financial institutions’ and their clients’ progress in transitioning away from LIBOR.

Most FSB jurisdictions have a strategy in place to address LIBOR transition, as opposed to only half of the surveyed non-FSB jurisdictions. Authorities in LIBOR jurisdictions are relatively more advanced in taking initiatives to facilitate and monitor benchmark transition. Financial institutions in these jurisdictions have shown better progress, although significant challenges remain. In light of the expected cessation of LIBOR after end-2021, authorities should strengthen their efforts in facilitating financial and non-financial institutions to transition away from LIBOR.

The report includes three sets of recommendations to support LIBOR transition that should generally be applicable to all jurisdictions with LIBOR exposures.

  • Identification of transition risks and challenges – authorities and standard-setting bodies to issue public statements to promote awareness and engage with trade associations, and authorities to undertake regular surveys of LIBOR exposure and to request updates from financial institutions.
  • Facilitation of LIBOR transition – authorities to establish a formal transition strategy supported by adequate resources and industry dialogue. Supervisory authorities should consider increasing the intensity of supervisory actions when the preparatory work of individual banks is unsatisfactory.
  • Coordination – authorities to promote industry-wide coordination, maintain dialogue on the adoption of fallback language, consider identifying legislative solutions, where necessary, and exchange information on best practices and challenges. The FSB and the standard-setting bodies will coordinate at the international level to identify key common metrics for monitoring transition progress.

LIBOR transition is a G20 priority and the report responds to the G20 request to identify remaining challenges to benchmark transition and to explore ways to address them. The report is a deliverable for the G20 Finance Ministers and Central Bank Governors virtual meeting on 18 July.

The FSB set out in 2014 a series of recommendations for strengthening key interbank offered rates (IBORs) in the unsecured lending markets, and for promoting the development and adoption of alternative nearly risk-free reference rates, where appropriate. The FSB published its most recent annual progress report in December 2019 on implementation of the recommendations.

FSB and Basel Committee set out supervisory recommendations for benchmark transition

  • Continued reliance of financial markets on LIBOR poses clear risks to global
    financial stability.
  • Transition away from LIBOR by end-2021 requires significant commitment and sustained effort from both financial and non-financial institutions.
  • Report includes three sets of recommendations to support LIBOR transition.

The Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS) today published a report on Supervisory issues associated with benchmark transition. Continued reliance of financial markets on LIBOR poses clear risks to global financial stability. Transition away from LIBOR by end-2021 requires significant commitment and sustained effort from both financial and non-financial institutions across many jurisdictions. The report includes insights on remaining challenges to transition based on surveys undertaken by the FSB, the BCBS and the International Association of Insurance Supervisors (IAIS). It sets out recommendations for authorities to support financial institutions’ and their clients’ progress in transitioning away from LIBOR.

Most FSB jurisdictions have a strategy in place to address LIBOR transition, as opposed to only half of the surveyed non-FSB jurisdictions. Authorities in LIBOR jurisdictions are relatively more advanced in taking initiatives to facilitate and monitor benchmark transition. Financial institutions in these jurisdictions have shown better progress, although significant challenges remain. In light of the expected cessation of LIBOR after end-2021, authorities should strengthen their efforts in facilitating financial and non-financial institutions to transition away from LIBOR.

The report includes three sets of recommendations to support LIBOR transition that should generally be applicable to all jurisdictions with LIBOR exposures.

  • Identification of transition risks and challenges – authorities and standard-setting bodies to issue public statements to promote awareness and engage with trade associations, and authorities to undertake regular surveys of LIBOR exposure and to request updates from financial institutions.
  • Facilitation of LIBOR transition – authorities to establish a formal transition strategy supported by adequate resources and industry dialogue. Supervisory authorities should consider increasing the intensity of supervisory actions when the preparatory work of individual banks is unsatisfactory.
  • Coordination – authorities to promote industry-wide coordination, maintain dialogue on the adoption of fallback language, consider identifying legislative solutions, where necessary, and exchange information on best practices and challenges. The FSB and the standard-setting bodies will coordinate at the international level to identify key common metrics for monitoring transition progress.

LIBOR transition is a G20 priority and the report responds to the G20 request to identify remaining challenges to benchmark transition and to explore ways to address them. The report will be delivered to G20 Finance Ministers and Central Bank Governors ahead of their virtual meeting on 18 July.

Notes to editors

The FSB set out in 2014 a series of recommendations for strengthening key interbank offered rates (IBORs) in the unsecured lending markets, and for promoting the development and adoption of alternative nearly risk-free reference rates, where appropriate. The FSB published its most recent annual progress report in December 2019 on implementation of the recommendations. The BCBS published a newsletter in February 2020 outlining regulatory and supervisory implications related to benchmark rate reforms.

Press enquiries:

BCBS: +41 61 280 8188, [email protected]

FSB: +41 61 280 8138, [email protected]

IAIS publishes supervisory recommendations to address remaining challenges of LIBOR transition in the insurance sector

8 July 2020