FSB ‘Post-Mortem’ of COVID-19 Crisis to Study Vulnerabilities of Nonbank Financial Sector

The Financial Stability Board will undertake a holistic review of the market volatility that followed the initial outbreak of COVID-19 earlier this year, according to a report released today. As part of that review, the FSB said it would “consider the nature of any vulnerabilities in nonbank financial intermediation” as well as the overall resilience of the nonbank financial sector.

“The market turmoil has reinforced the need to better understand the nature of liquidity risks in the global financial system,” the report said. The FSB added that it intends to produce an “interconnectedness map” highlighting linkages between banks and NBFI entities, which is how the FSB refers to shadow banking, and that it will use this map to inform its work regarding nonbanks for 2021 and beyond.

Despite the severe stresses due to the pandemic, the FSB acknowledged that overall, the financial system “entered the crisis more resilient and better placed to sustain financing to the real economy” as a result of changes made since the 2008 financial crisis. “Financial market infrastructures, particularly central counterparties, have functioned well, despite challenging financial and operational conditions,” the FSB found.