Financial Groups Highlight “Vital” Role Of Financial Markets During COVID-19 – Finance and Banking – United States – Mondaq News Alerts

United States: Financial Groups Highlight “Vital” Role Of Financial Markets During COVID-19

28 May 2021

Cadwalader, Wickersham & Taft LLP

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The Financial Services Forum, the Institute of International
Finance and ISDA detailed how financial markets and
participants provided “vital” support to the economy
during the COVID-19 pandemic.

In the report, the authors examined:

• Financial System Strength and Resilience. The report
  stated that banks were able to “absorb and manage, rather than
  amplify” the economic shock because of the past decade’s
  regulatory reform, which ensured strong capital and liquidity
  positions and reduced counterparty credit risk through central
  clearing and collateralization of exposures.
• Access To Credit. The report cited the Bank for
  International Settlements, which reported that U.S. bank credit
  expanded by over $400 billion in a single quarter, and that bank
  lending in the EU, UK and Japan satisfied credit demand at three to
  five times the normal rate for loans. These same jurisdictions also
  experienced a “significant inflow” of deposits.
• Ability to Raise Capital. The public securities market
  saw a surge in bond issuance and a rebound in primary equity
  issuance.
• Secondary Markets and Market-Making. The report found
  that large banks supported the secondary markets by increasing
  inventory holding and “actively” making markets in
  derivatives.

The authors suggested in the report that policymakers and
regulators use “new and fresh” data from the pandemic to
consider the efficacy of existing policies relating to
risk-insensitive leverage requirements, the “usability”
of capital and liquidity buffers, the potential procyclicality of
the regulatory framework, and post-trade risk reduction
measures.

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