Global Financial Stability Report, April 2020: Markets in the Time of COVID-19

Global Financial Stability Report, April 14, 2020

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Bibliographic details

• Published: April 14, 2020
• Series: Global Financial Stability Report
• DOI: https://doi.org/10.5089/9781513529196.082

Overview

• Publication date: April 14, 2020
• Principal focus: financial stability challenges posed by the coronavirus (COVID-19) pandemic.
• High-level finding: financial conditions tightened abruptly with the onset of the pandemic, with risk asset prices dropping sharply as investors rushed to safety and liquidity.

Chapter 1 — Financial conditions and vulnerabilities

• Findings:
  • Financial conditions tightened abruptly with the onset of the pandemic.
  • Risk asset prices dropped sharply as investors rushed to safety and liquidity.
  • A further tightening of financial conditions may expose vulnerabilities, including among nonbank financial institutions.
  • Bank resilience may be tested if economic and financial market stresses rise.

Chapter 2 — Vulnerabilities in risky corporate credit markets

• Findings:
  • Vulnerabilities in global risky corporate credit markets include:
  • Weakened credit quality of borrowers.
  • Looser underwriting standards.
  • Liquidity risks at investment funds.
  • Increased interconnectedness.
  • These vulnerabilities could generate losses at nonbank financial institutions in a severe adverse scenario.

Chapter 3 — Portfolio flows to emerging and frontier markets

• Findings:
  • The pandemic led to an unprecedented and sharp reversal of portfolio flows, highlighting the challenges of managing flows in emerging and frontier markets.
  • Global financial conditions tend to influence portfolio flows more during surges than in normal times.
  • Stronger domestic fundamentals can help mitigate outflows.
  • Greater foreign participation in local currency bond markets may increase price volatility where domestic markets lack depth.

Chapter 4 — Bank profitability pressures

• Findings:
  • Beyond immediate COVID-19 challenges, banks are likely to face profitability pressures over the medium term in an environment where low interest rates are expected to persist.

Chapter 5 — Physical risks associated with climate change

• Findings:
  • Physical risks associated with climate change do not appear to be reflected in global equity valuations.
  • Stress testing and better disclosure of exposures to climatic hazards are essential to better assess physical risk.

References

• https://www.imf.org/en/publications/gfsr
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