The crisis caused by the pandemic that is plaguing the world represents a "very serious threat" to the stability of the global financial system. The warning is contained in the financial stability report released this Tuesday by the International Monetary Fund (IMF).
"This crisis represents a very serious threat to the stability of the global financial system", says the entity in the report, noting that, following the spread of the virus, "financial conditions became more restrictive at an unprecedented pace, exposing some 'weaknesses 'in the global financial markets ".
In this scenario, a "long period of disruption in the financial markets can put pressure on financial institutions", which, in turn, will make access to credit more difficult for families and companies, "exacerbating the economic slowdown", says the IMF.
The same entity also notes that the "impact of the crisis on the global economy, as well as the timing of a recovery, is highly uncertain", this in the face of a pandemic that, according to the most recent figures, has already infected more than two million of people around the world.
According to the IMF, in "just three months, the 'outlook' for 2020 changed from an expected growth of more than 3%, globally, to a sharp contraction of 3% - much worse than what was recorded during the 2008-2009 global financial crisis ".
"Decisive" measures to safeguard stability
To safeguard financial and economic stability, countries are taking "decisive action", the fund considers. "Central banks have eased monetary policies and are providing liquidity to the financial system." It is thanks to these efforts, he says, that the markets remain "functional" and the "investor sentiment shows signs of improvement".
Supervisors, on the other hand, are "encouraging banks to prudently renegotiate loans" with those most affected by the crisis. This is the case with credit default on households and companies. Finally, national authorities are supporting individuals and businesses through the implementation of "temporary" and "timely" measures, in order to limit the insolvency of businesses and families.
As a result of these actions, "investor sentiment has stabilized in recent weeks. Tensions in some markets have eased and risk asset prices have recovered part of the initial crashes. However, sentiment remains fragile. Global financial conditions remain very limited in compared to the beginning of the year, "notes the IMF.
These policies, he also defends, are essential to ensure that this economic breakdown will not lead to more permanent damage to the economy, the financial system and to society. "Once the virus is under control, policies should be used to promote recovery," he says.
Pressurized stand
Although the IMF considers that "banks now have more capital and liquidity than in the past", which left them in a better position to withstand this new financial crisis, this resilience "can be tested in some countries" due to the strong economic slowdown.
"The sharp fall in bank shares since mid-January suggest that investors are concerned about the banks' profitability and possible resilience," he notes. Securities fell, on average, close to 35% in this period.
The concern now, the fund also says, focuses on the possibility of financial institutions being "amplifiers", in the event of a deepening of the crisis. In this scenario, "supervisors should encourage banks to negotiate, in a prudent manner, temporary adjustments to loans to households and companies struggling to meet their obligations".
