Global Financial Stability Report Update: Financial Conditions Have Eased, but Insolvencies Loom Large
Global Financial Stability Report, June 2020
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- Published: June 25, 2020
Overview
- Publication: Global Financial Stability Report Update
- Date: June 2020
- Main takeaway: Risk asset prices have rebounded following the precipitous fall early in the year, while benchmark interest rates have declined, leading to an overall easing of financial conditions.
Market drivers and recent developments
- Swift and bold actions by central banks aimed at addressing severe market stress have boosted market sentiment.
- Asset purchases have been deployed in a number of emerging market countries for the first time, helping bring about the easing in financial conditions.
- A disconnect has emerged between financial markets and the evolution of the real economy, creating a vulnerability that could pose a threat to the recovery should investor risk appetite fade.
Financial vulnerabilities and risks
- Other financial system vulnerabilities may be crystallized by the COVID-19 pandemic.
- High levels of debt may become unmanageable for some borrowers, and the losses resulting from insolvencies could test bank resilience in some countries.
- Some emerging and frontier market economies are facing refinancing risks, and market access has dried up for some countries.
Policy implications and recommendations
- Authorities should continue to support the real economy while closely monitoring financial vulnerabilities.
- Safeguarding financial stability is necessary given the potential for insolvencies and testing of bank resilience.
Source: Global Financial Stability Report Update, June 2020.
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- Global Financial Stability Update; June 2020