Thanks to the reforms that were carried out after the 2007-2009 financial crisis, “the financial system is doing its job well in the corona crisis”. The FSB’s Financial Stability Board came to this, at the moment reassuring, assessment in its report which it prepared for the G20 summit next weekend. In a press conference late Monday, an FSB spokesman praised the banks’ increased resilience. This enabled the global financial system to cope with the economic shock.
Higher equity capital and more liquid money (“liquidity”) allowed the banks to grant undiminished loans and support the economic recovery. Only Brazil and Mexico lag behind among the G20 countries when it comes to introducing the “Basel III” reform package.
In contrast to the 2007-2009 financial crisis, the corona crisis arose outside of the financial system. The Bundesbank sounds more skeptical. How the pandemic will affect the development of the financial system will only be able to be assessed more precisely in some time. Nevertheless, the question of the extent to which the progressive networking of financial systems makes them more susceptible is raised again by Corona.
The Financial Stability Board includes representatives from central banks, finance ministries and supervisory authorities of the G20 countries as well as the Bank for International Settlements in Basel, a kind of central bank of the central banks in which the “Basel III” reform package was put together. The forerunner of the FSB was founded in 1999 at the suggestion of the then President of the Deutsche Bundesbank, Hans Tietmeyer, under the impression of the Asian crisis.
Even after the financial crisis, the international interdependence of the national financial systems continued to grow, writes the Bundesbank in its monthly report. Even if at a slower pace than before. In 2007 a real estate crisis in the US infected the global financial system. That could happen again today: “If you look at the development, it becomes apparent that an abrupt outflow or reversal of capital flows can pose considerable challenges, especially to countries with less developed financial systems.” Emerging and developing countries are therefore particularly at risk. But even Germany and the USA are threatened with contagion. “Since open economies are linked in real economic and financial terms, shocks in one country can also have an impact on other countries and have repercussions from them.” This also applies “increasingly” to shocks emanating from economically weaker countries.
Against this background, the G20 finance ministers’ meeting last Friday disappointed many observers. By no means all countries in need are to be granted deferred payments, and private creditors were not included in the intended debt relief. For Jürgen Kaiser from the debt relief alliance Erlassjahr.de, this is bitter: “The G20 have once again failed because of their inability to negotiate compromises with one another in the interests of global financial stability.”
Meanwhile, the European Central Bank is worried about so-called zombie companies, which are being kept alive through corona rescue programs and extremely low interest rates, and it is worried about the loan portfolio of banks, especially in southern Europe.
The General Director of the European Central Bank (ECB), Stefan Walter, warned on Tuesday in the »Börsen-Zeitung«: »It is now very important to us that banks differentiate between their loans; that they are wondering in which areas there could be problems if the support measures and the moratoria expire. «The ECB, which also oversees the big banks, is reviewing the loan books, has stopped dividend payments and relaxed capital requirements so that banks can survive future corporate failures and loan defaults at the same time can continue to feed the economy with credit.