Financial Conditions Have Eased, but Insolvencies Loom Large

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Financial Conditions Have Eased, but Insolvencies Loom Large

The Global Financial Stability Update at a Glance

  • Risk asset prices have rebounded following the precipitous fall early in the year, while benchmark
    interest rates have declined, leading to an overall easing of financial conditions.
  • Swift and bold actions by central banks aimed at addressing severe market stress have boosted
    market sentiment, including in emerging markets, where asset purchases have been deployed in a
    number of countries for the first time, helping bring about the easing in financial conditions.
  • Amid huge uncertainties, a disconnect between financial markets and the evolution of the real
    economy has emerged, a vulnerability that could pose a threat to the recovery should investor risk
    appetite fade.
  • Other financial system vulnerabilities may be crystallized by the COVID-19 pandemic. High
    levels of debt may become unmanageable for some borrowers, and the losses resulting from
    insolvencies could test bank resilience in some countries.
  • Some emerging and frontier market economies are facing refinancing risks, and market access has
    dried up for some countries.
  • Authorities, while continuing to support the real economy, need to closely monitor financial
    vulnerabilities and safeguard financial stability.
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