IIF, ISDA Release Study on Financial Sector Support During Pandemic

The report recognises the actions of central banks, financial authorities and regulatory agencies amid the pandemic, saying they were critical in stabilising markets.

The Financial Services Forum, IIF (Institute of International Finance), and ISDA (International Swaps and Derivatives Association) have released a new report detailing the ways in which financial markets and institutions provided support to the global economy during the coronavirus pandemic.

The report shows how financial markets and institutions mitigated the economic impact of the pandemic by helping to stabilise volatile markets, cushioning the initial impact of the economic shutdown, providing needed credit and liquidity to customers, and helping to restore confidence.

“It is clear that the decade-long implementation of regulatory reform initiatives has significantly enhanced the strength and resiliency of the financial system and banks,” the report says. “This, in turn, has enabled them to play a constructive role in providing financing, facilitating access to capital and supporting the functioning of key markets during the pandemic.”

The report recognises that the “swift and decisive” actions of central banks, financial authorities and regulatory agencies amid the pandemic, saying they were critical in stabilising markets through funding programmes, liquidity support measures and regulatory adjustment measures.

The report highlights how the banking system met the increased need for credit, pointing to an increase in total bank credit to non-financial corporations globally by more than USD 2 trillion from the end of 2019 to the middle of 2020.

In addition, the public securities markets saw global corporate bond issuance increase 66 percent in 2020 from 2019 and sovereign bond issues increase 36 percent, a surge that proved to be vital given the significant revenue shortfalls suffered by companies and governments.

The report also credits banks for supply the secondary markets for corporate and government securities with liquidity through market-making activities and by building up their holdings of securities across sectors and instruments. In addition, banks provided support for government-related programmes, including through loan repayment deferrals.

The report notes that banks were able to provide support due to capital, liquidity and overall resilience built up during the past decade of regulatory reform.

The report also highlights issues that should be considered by policymakers and others as they consider ways to ensure markets and firms are better prepared to deal with the next global crisis.

In particular, it discusses issues relating to the efficacy of risk-insensitive leverage requirements, the usability of capital and liquidity buffers, and the potential procyclicality of elements of the regulatory framework including ECL requirements under IFRS 9.

The full report is available here.

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