Global Financial Stability Report, October 2020: Bridge to Recovery

Global Financial Stability Report, October 23, 2020

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Bibliographic details

• Published: October 23, 2020
• Series: Global Financial Stability Report
• DOI: https://doi.org/10.5089/9781513554228.082

Near-term risks and policy response

• Near-term global financial stability risks have been contained as an unprecedented policy response to the coronavirus (COVID-19) pandemic has helped avert a financial meltdown and maintain the flow of credit to the economy.
• For the first time, many emerging market central banks have launched asset purchase programs to support the smooth functioning of financial markets and the overall economy.
• The outlook remains highly uncertain, and vulnerabilities are rising, representing potential headwinds to recovery.

Real–financial disconnect and corporate stress

• The report assesses the real-financial disconnect and provides forward-looking analysis of nonfinancial firms, banks, and emerging market capital flows.
• After the outbreak, firms’ cash flows were adversely affected as economic activity declined sharply.
• More vulnerable firms—those with weaker solvency and liquidity positions and smaller size—experienced greater financial stress than their peers in the early stages of the crisis.
• As the crisis unfolds, corporate liquidity pressures may morph into insolvencies, especially if the recovery is delayed.
• Small and medium-sized enterprises (SMEs) are more vulnerable than large firms with access to capital markets.

Banking sector resilience and risks

• Although the global banking system is well capitalized, some banking systems may experience capital shortfalls in an adverse scenario, even with the currently deployed policy measures.
• The report includes forward-looking analysis of banks and loan loss provisions to gauge possible stress under adverse scenarios.

Emerging markets and capital flows

• Emerging market central banks’ asset purchase programs are highlighted as a novel policy tool deployed to support market functioning and economic activity.
• The report analyzes emerging market capital flows and related vulnerabilities in the context of the pandemic.

Environmental performance of firms

• The report assesses the pandemic’s impact on firms’ environmental performance to gauge the extent to which the crisis may result in a reversal of the gains posted in recent years.

Key findings and implications

• Policy actions to date have been crucial in averting a financial meltdown and sustaining credit flows.
• Rising vulnerabilities (corporate liquidity stress, SME fragility, potential bank capital shortfalls) could become headwinds to recovery if the outlook deteriorates.
• Early-stage stress was concentrated among firms with weaker solvency and liquidity positions and smaller size.

Global Financial Stability Report, October 2020: Bridge to Recovery — October 23, 2020

References

• https://www.imf.org/en/publications/gfsr
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• Banking
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• Financial sector risk
• Global Financial Stability Reports
• Global Financial Stability Risks
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