The risks of aftershocks still weigh on the financial system, according to the FSB

Inflated asset valuations and high debt levels, as well as the weight of extraordinary fiscal and monetary responses to the crisis, continue to pose key vulnerabilities, according to the report.

“A rapid tightening of financial conditions following a strong rebound in the global economy, or a strong resurgence of the pandemic leading to another round of strict lockdowns, could trigger these vulnerabilities,” the FSB warned.

At the same time, the FSB said the pandemic provided an important test of the G20 reforms that were adopted in the wake of the 2008 financial crisis, reinforcing the importance of global cooperation between regulators – and the need complete their implementation. reforms.

Yet, over the past year, there has been “limited progress” in enacting G20 reforms, the report said, with policymakers concerned about their responses to the pandemic.

“The implementation of the final reforms of the capital framework is still in its early stages,” said the FSB. “More work is also needed to close gaps in the operationalization of bank resolution plans and to implement effective resolution regimes for insurers and central counterparties. “

Other FSB priorities include improving the resilience of the shadow banking sector and overseeing cybersecurity, risks associated with ‘global stable currency’ agreements, and climate-related financial risks.

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Don F. Davis

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