The Financial Stability Board (FSB) – the international body that monitors and makes recommendations about the global financial system – delivered a report to G20 leaders on the 17th November, ahead of their 21st November Summit held virtually under the presidency of Saudi Arabia.
The report, titled “Holistic Review of the March Market Turmoil” provides comprehensive analysis of the market volatility and impacts on the global financial market. The report covers key topics which include an overview of the market developments around the March 2020 period, the primary origins of the market stress, the propagation of the impact due to COVID-19 and concludes with the key public sector responses. In addition, the FSB explore several themes and in particular, highlights the resilience of CCPs during the severe impact of COVID-19. Page 24 of the report mentions: “CCPs remained resilient despite market turbulence. Increased use of central clearing in derivatives markets reduced aggregate collateral demands by allowing exposures and payment obligations to be netted multilaterally.”
The FSB examine the activities and mechanisms which acted as proponents of the liquidity stress in March 2020. Post global financial crisis (GFC) reforms coupled with the higher build up liquidity positions at banks, helped prevent sharp rises in counterparty risks. In the absence of swift policy and central bank intervention which were introduced over the volatile period, the financial system would have worsened significantly. The successful implementation of such measures were crucial to stabilizing the markets.
The report calls for the need to strengthen the resilience of non-bank financial intermediation (NBFI) for the global financial system to be able to withstand such significant shocks and “ensure the smooth provision of financing the real economy”.
The FSB will continue to work closely with other standard-setting-bodies (SSBs) to ensure an enhanced and resilient financial market capable of absorbing such stresses.
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