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Financial stability risks remain, as Covid-19 returns

With an apparent second wave of Covid-19 infections underway in several countries, global banking regulators warn that the outlook for the global financial system remains uncertain.

Following a series of meetings to assess the effects of the pandemic on the global banking system, among other issues, the Basel Committee on Banking Supervision highlighted a variety of risks to financial stability, including the “trajectory of Covid-19 infections and containment measures,” the prospect of a prolonged recovery period, and the winding down of emergency fiscal supports.

It also noted that “the banking system’s operational resilience will continue to be tested” due to the shift to remote working and the industry’s increased reliance on technology.

“The committee will continue to monitor the risks to the global banking system from Covid-19 and will pursue additional measures if needed,” it said.

In the meantime, the regulators reaffirmed their expectation that the remaining Basel III reforms will be adopted, and reiterated previous guidance that banks should use their capital and liquidity buffers to absorb financial shocks and to support the economic recovery.

Additionally, the Basel Committee approved the results of the latest annual exercise to determine which banks are considered global systemically important banks (G-SIBs). Those results are typically announced in November, with designated banks facing tougher capital and supervisory expectations.

Source: Investment Executive