A letter from the Financial Stability Board (FSB) Chair, Randal K. Quarles, to G20 Leaders ahead of their November Summit, notes that while financial conditions have continued to ease the global economic outlook remains uncertain and financial stability risks elevated.  In his letter, the FSB outlines three responses to financial stability vulnerabilities resulting from COVID-19 as follows:  

• Coming to a shared diagnosis – the letter notes that the market turmoil in March manifested itself differently in countries around the world. Emerging market economies experienced severe strains in offshore US dollar funding markets; whereas some advanced economies experienced significant outflows from certain types of investments. The FSB’s holistic review assesses the initial stages of the COVID-19 Event as having exposed a number of common strengths and vulnerabilities across the global financial system.

• The need for continued vigilance and policy support – the challenges posed by the COVID Event have by no means dissipated yet. Persistent economic uncertainty and still elevated financial stability risks call for continued vigilance. The FSB continues to carefully monitor for signs of emerging vulnerabilities. The protracted nature of the COVID Event requires continued efforts to support financial resilience and ensure a sustained flow of financing to the real economy.

• Enhancing financial sector resilience going forward – the COVID-19 Event has provided an opportunity to further assess financial stability risks and to refine measures put in place after the 2008 global financial crisis, where appropriate. These lessons can help strengthen financial sector resilience to better prepare for future shocks.

A copy of the letter and other responses to the COVID-19 crisis can be viewed here.