International Women’s Day, March 8, marks a year from the start of widespread lockdowns in response to COVID-19. As an IMF blog warned back in July, women have borne the economic and social brunt of the pandemic. With many governments preparing budgets for the next fiscal year, we now have a golden opportunity to counter this inequity. We offer a starter kit for gender budgeting to help countries focus resources on women, and ensure future budgets are better for them than previous ones.
Government actions work
Examples abound of the disproportionate impact of lockdown policies on women and girls: one million Japanese women left the labor market when the pandemic hit, while labor force participation by men changed far less. In Chile, 76 percent of women reported spending more time on domestic chores since COVID-19 began. Mexico saw a 53 percent increase in emergency calls related to violence against women. The Malala Fund estimates that 20 million girls in developing countries may never return to the classroom after pandemic-related school shutdowns.
Bad as this is, it could have been even worse but for government actions. The UN’s COVID-19 Global Gender Response Tracker shows countries enacted nearly 1,000 policy measures to address challenges related to gender. These include paid leave for women, job protection measures, more flexible work, and income/in-kind support for the vulnerable households.
IMF research concludes these measures work. They increase women’s employment which, in turn, improves economic well-being for all. Such policies should be built upon. Failing to do so risks long-term scarring that will cement women’s disadvantage and harms the prospects for recovery.
Gender budgeting—a guide
But adopting such policies is only half the battle. Their impacts can be further amplified as part of a coherent gender strategy that is based on need, effectively designed, aligned with the budget process, and monitored and evaluated to improve implementation. This is the essence of gender budgeting.
Gender budgeting brings the powerful tool of national budgets to bear on gender inequalities. It integrates gender into the policies and processes of public financial management.
While strengthening gender budgeting is a continuous and long-term investment, we lay out an actionable toolkit—no matter a country’s previous experience—to jumpstart the process.
The starter kit
First, assemble evidence to assess the impact of the pandemic and lockdown on women and girls. A response without a sense of the size or location of the problem is like throwing a dart in the dark. How are the country’s female-dominated sectors faring? Do women rely more heavily on scaled-back public services?
Presenting the evidence in a single document, such as a Gender Needs Assessment, can focus efforts. UN-Women shows it can be done quickly. In just one month, at the start of the pandemic, the agency performed a Gender Needs Assessment in Ukraine based on phone and online surveys.
Better by design
This evidence can be used to focus policy responses. However, the best policy intention in the world cannot overcome poor policy design. Gender Impact Assessments can strengthen that design by assessing the proportion of female beneficiaries, and potential barriers to access—in Austria and Canada, they are now part of all new budget proposals.
Such assessments can also highlight unintended gender bias. For example, a wage subsidy scheme might leave out informal sector workers—often predominantly female—or a tax policy could discourage women from working.
Allocating resources
Third, it is crucial to allocate sufficient resources to gender policies to transform goals into action. The IMF has supported increasing allocations towards women. For example, the IMF’s Egypt program included measures to support higher budget allocations for targeted cash transfers (many to women), and to improve public childcare services.
As governments prepare budgets for next year, anchoring gender policy goals through Budget Circulars and Gender Budget Statements ensures sufficient resources are channeled to these goals. An added benefit: they also provide confidence and transparency to the public. Philippines’ 2021 Budget Circular incorporates priority policy areas, including in health, nutrition, and social protection, that support women.
Track and evaluate
Finally, track expenditures and evaluate impacts. Tracking gender-focused funds in the budget, light-touch policy evaluations, and gender performance audits can provide timely feedback to course correct where needed, and ensure that policies are working. For example, Sierra Leone’s real-time audits effectively responded to the Ebola epidemic and highlighted issues in drug distribution and duplicated payments.
The IMF remains deeply committed to gender equality and has worked with 113 member countries on implementing budgetary practices, allocations, and tax policies to promote gender equality. Since the start of the pandemic, over 55 countries have invested in gender budgeting training with the Fund.
Almost all countries have gender equality goals, but an IMF survey finds only half have legal frameworks to carry them out. Only a quarter use established practices such as Gender Budget Statements and Gender Impact Assessments.
Some countries have already implemented gender budgeting, while others are novices, but all have room for improvement. Recovery from the pandemic is an opportunity to accelerate progress and reap the dividends.
Compliments of the IMF.
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The EU is taking measures to enhance corporate transparency of big multinational companies. Member states’ ambassadors today mandated the Portuguese presidency to engage in negotiations with the European Parliament for the swift adoption of the proposed directive on the disclosure of income tax information by certain undertakings and branches, commonly referred to as the public country-by-country reporting (CBCR) directive.
The directive requires multinational enterprises or standalone undertakings with a total consolidated revenue of more than €750 million in each of the last two consecutive financial years, whether headquartered in the EU or outside, to disclose publicly in a specific report the income tax they pay in each member state, together with other relevant tax-related information.
Banks are exempted from the present directive as they are obliged to disclose similar information under another directive.
In order to avoid disproportionate administrative burdens on the companies involved and to limit the disclosed information to what is absolutely necessary to enable effective public scrutiny, the directive provides for an complete and final list of information to be disclosed.
The reporting will have to take place within 12 months from the date of the balance sheet of the financial year in question. The directive sets out the conditions under which a company may obtain the deferral of such disclosure for a maximum of six years.
It also stipulates who bears the actual responsibility for ensuring compliance with the reporting obligation.
Member states will have two years to transpose the directive into national law.
Next steps
On the basis of the agreed negotiating mandate, the Portuguese presidency will explore with the European Parliament the possibility of an agreement for the swift adoption of the directive at second reading (“early second reading agreement”).
Background
The proposed directive, tabled in April 2016, is part of the Commission action plan on a fairer corporate tax system.
The European Parliament adopted its position at first reading on 27 March 2019.
Compliments of the Council of the European Union.
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The European Commission has today presented a proposal on pay transparency to ensure that women and men in the EU get equal pay for equal work. A political priority of President von der Leyen, the proposal sets out pay transparency measures, such as pay information for job seekers, a right to know the pay levels for workers doing the same work, as well as gender pay gap reporting obligations for big companies. The proposal also strengthens the tools for workers to claim their rights and facilitates access to justice. Employers will not be allowed to ask job seekers for their pay history and they will have to provide pay related anonymised data upon employee request. Employees will also have the right to compensation for discrimination in pay.
New measures, which take into account the impact of COVID-19 pandemic on both, employers but also on women, who have been hit in particular hard, will increase awareness about pay conditions within the company and give more tools to employers and workers to address the pay discrimination at work. This will address a number of substantial factors contributing to the existing pay gap and is particularly relevant during COVID-19 pandemic, which is reinforcing gender inequalities and puts women into greater risk of poverty exposure.
President of the European Commission, Ursula von der Leyen, said: “Equal work deserves equal pay. And for equal pay, you need transparency. Women must know whether their employers treat them fairly. And when this is not the case, they must have the power to fight back and get what they deserve.”
Vice-President for Values and Transparency, Vera Jourová said: “It is high-time both women and men are empowered to claim their right. We want to empower job seekers and workers with tools to demand fair salary and to know and claim their rights. This is also why employers must become more transparent about their pay policies. No more double standards, no more excuses.”
Commissioner for Equality, Helena Dalli, said: “The pay transparency proposal is a major step toward the enforcement of the principle of equal pay for equal work or work of equal value between women and men. It will empower workers to enforce their right to equal pay and lead to an end to gender bias in pay. It will also allow for the detection, acknowledgment and addressing of an issue that we wanted to eradicate since the adoption of the Treaty of Rome in 1957. Women deserve due recognition, equal treatment and value for their work and the Commission is committed to ensuring that workplaces meet this objective.”
Pay transparency and better enforcement of equal pay
The legislative proposal focuses on two core elements of equal pay: measures to ensure pay transparency for workers and employers as well as better access to justice for victims of pay discrimination.
Pay transparency measures:

Pay transparency for job-seekers – Employers will have to provide information about the initial pay level or its range in the job vacancy notice or before the job interview. Employers will not be allowed to ask prospective workers about their pay history.

Right to information for employees – Workers will have the right to request information from their employer on their individual pay level and on the average pay levels, broken down by sex, for categories of workers doing the same work or work of equal value.

Reporting on gender pay gap – Employers with at least 250 employees must publish information on the pay gap between female and male workers in their organisation. For internal purposes, they should also provide information on the pay gap between female and male employees by categories of workers doing the same work or work of equal value.

Joint pay assessment – Where pay reporting reveals a gender pay gap of at least 5% and when the employer cannot justify the gap on objective gender neutral factors, employers will have to carry out a pay assessment, in cooperation with workers’ representatives.

Better access to justice for victims of pay discrimination:

Compensation for workers – workers who suffered gender pay discrimination can get compensation, including full recovery of back pay and related bonuses or payments in kind.

Burden of proof on employer – it will be by default for the employer, not the worker, to prove that there was no discrimination in relation to pay.

Sanctions to include fines – Member States should establish specific penalties for infringements of the equal pay rule, including a minimum level of fines.

Equality bodies and workers’ representatives may act in legal or administrative proceedings on behalf of workers as well as lead on collective claims on equal pay.

The proposal takes into account the current difficult situation of employers , in particular in private sector, and maintains proportionality of measures while providing flexibility for small and medium enterprises (SMEs) and encouraging Member States to use available resources for reporting of data. The annual costs of pay reporting for the employers are estimated to be from €379 to €890 or companies with 250+ employees.
Next steps
Today’s proposal will now go to the European Parliament and the Council for approval. Once adopted, Member States will have two years to transpose the Directive into national law and communicate the relevant texts to the Commission. The Commission will carry out an evaluation of the proposed Directive after eight years.
Background
The right to equal pay between women and men for equal work or work of equal value has been a founding principle of the European Union since the Treaty of Rome in 1957. The requirement to ensure equal pay is set out in Article 157 TFEU and in Directive on the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation.
The European Commission adopted a Recommendation on strengthening the principle of equal pay between men and women through transparency in March 2014. Despite this, the effective implementation and enforcement of this principle in practice remains a major challenge in the European Union. The European Parliament and the Council have repeatedly called for action in this area. In June 2019, the Council called on the Commission to develop concrete measures to increase pay transparency.
President von der Leyen announced binding pay transparency measures as one of her political priorities for this Commission. This commitment was reaffirmed in the Gender Equality Strategy 2020-2025 and today the Commission is presenting a proposal to that end.
Compliments of the European Commission.
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The European Commission has today adopted a Communication providing Member States with broad guidance on the conduct of fiscal policy in the period ahead. It provides guiding principles for the proper design and quality of fiscal measures. It sets out the Commission’s considerations regarding the deactivation or continued activation of the general escape clause. It also provides general indications on the overall fiscal policy for the period ahead, including the implications of the Recovery and Resilience Facility (RRF) for fiscal policy.
The Commission is committed to ensuring a coordinated and consistent policy response to the current crisis. This requires credible fiscal policies that address the short-term consequences of the coronavirus pandemic and support the recovery, while not endangering fiscal sustainability in the medium-term. This Communication aims to support those objectives.
Guidance for coordinated fiscal policies
The coordination of national fiscal policies is essential to support the economic recovery. The Communication specifies that fiscal policy should remain agile and adjust to the evolving situation. It warns against a premature withdrawal of fiscal support, which should be maintained this year and next. It provides that once health risks diminish, fiscal measures should gradually pivot to more targeted and forward-looking measures that promote a resilient and sustainable recovery and that fiscal policies should take into account the impact of the RRF. Finally, fiscal policies should take into account the strength of the recovery and fiscal sustainability considerations.
This guidance will facilitate Member States in the preparation of their stability and convergence programmes, which should be presented to the Commission in April 2021. The guidance will be further detailed in the Commission’s European Semester spring package.
Considerations for the deactivation or continued activation of the general escape clause
The Commission proposed the activation of the general escape clause in March 2020 as part of its strategy to respond quickly, forcefully and in a coordinated manner to the coronavirus pandemic. It allowed Member States to undertake measures to deal adequately with the crisis, while departing from the budgetary requirements that would normally apply under the European fiscal framework.
The Communication sets out the Commission’s considerations for how a future decision on the deactivation of the clause or its continued activation for 2022 should be taken. In the view of the Commission, the decision should be taken following an overall assessment of the state of the economy based on quantitative criteria. The level of economic activity in the EU or euro area compared to pre-crisis levels (end-2019) would be the key quantitative criterion for the Commission in making its overall assessment of the deactivation or continued application of the general escape clause. Therefore, current preliminary indications would suggest to continue applying the general escape clause in 2022 and to deactivate it as of 2023.
Following a dialogue between the Council and the Commission, the Commission will assess the deactivation or continued activation of the general escape clause on the basis of the 2021 Spring Forecast, which will be published in the first half of May.
Country-specific situations will continue to be taken into account after the deactivation of the general escape clause. In case a Member State has not recovered to the pre-crisis level of economic activity, all the flexibilities within the Stability and Growth Pact will be fully used, in particular when proposing fiscal policy guidance.
Making the best use of the Recovery and Resilience Facility
The Communication provides some general indications on Member States’ fiscal policy in 2022 and over the medium-term, including the link with the funds of the RRF. The RRF will play a crucial role in helping Europe recover from the economic and social impact of the pandemic and will help to make the EU’s economies and societies more resilient and secure the green and digital transitions.
The RRF will make €312.5 billion available in grants and up to €360 billion available in loans to Member States to support the implementation of reforms and investments. This will provide a sizeable fiscal impulse and help mitigate the risk of divergences in the euro area and the EU.
The implementation of the Recovery and Resilience Facility will also have important implications for national fiscal policies. Expenditure financed by grants from the RRF will provide a substantial boost to the economy in the coming years, without increasing national deficits and debt. It will also spur Member States to improve the growth-friendliness of their fiscal policies. Public investment funded by RRF grants should come on top of existing levels of public investment. Only if the RRF finances additional productive and high quality investment, will it contribute to the recovery and lift potential growth, in particular when combined with structural reforms in line with the country-specific recommendations.
Member States should make best use of the unique window of opportunity provided by the RRF to support the economic recovery, foster higher potential growth and improve their underlying fiscal positions in the medium to long term.
Public debate on the economic governance framework
The crisis brought about by the coronavirus pandemic has highlighted the relevance and importance of many of the challenges that the Commission sought to discuss and address in the public debate on the economic governance framework. Relaunching the public consultation on the framework will allow the Commission to reflect on these challenges and draw lessons. The Communication confirms the Commission’s intention to relaunch the public debate on the economic governance framework once the recovery takes hold.
Members of the College said:
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People said: “There is hope on the horizon for the EU economy, but for now the pandemic continues to hurt people’s livelihoods and the wider economy. To cushion this impact and to promote a resilient and sustainable recovery, our clear message is that fiscal support should continue as long as needed. Based on current indications, the general escape clause would remain active in 2022 and be deactivated in 2023. Member States should make the most of the Recovery and Resilience Facility, as this gives them a unique chance to support their economy without burdening public finances. Timely, temporary and targeted measures will allow a smooth return to sustainable budgets in the medium-term.”
Paolo Gentiloni, Commissioner for Economy said: “Our decision last March to activate the general escape clause was a recognition of the gravity of the unfolding crisis. It was also a statement of our determination to take all necessary steps to tackle the pandemic and support jobs and companies. One year on, the battle against COVID-19 is not yet won and we must ensure that we do not repeat the mistakes of a decade ago by pulling back support too soon. For 2022, it is clear that fiscal support will still be necessary: better to err towards doing too much rather than too little. At the same time, fiscal policies should be differentiated according to the pace of each country’s recovery and their underlying fiscal situation. Crucially, as funding from Next Generation EU begins to flow, governments should ensure that national investment spending is preserved and strengthened through EU grants.”
Compliments of the European Commission.
The post EU Commission presents updated approach to fiscal policy response to coronavirus pandemic first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Welcome address by Fabio Panetta, Member of the Executive Board of the ECB, at the Third Annual Joint Conference of the Deutsche Bundesbank, European Central Bank and Federal Reserve Bank of Chicago on CCP Risk Management | Frankfurt am Main, 3 March 2021 |

Introduction[1]

It is with great pleasure that I welcome you to the third conference on central counterparty (CCP) risk management, organised by the ECB together with the Deutsche Bundesbank and the Federal Reserve Bank of Chicago. This event has become an increasingly relevant international forum to discuss key challenges surrounding central clearing.
In my remarks today, I will reflect on key developments since we met a year ago. The coronavirus (COVID-19) pandemic is naturally foremost in my mind – the turmoil that hit financial markets last spring has underlined the need for robust and resilient market infrastructures such as CCPs. The end of the transition period following the United Kingdom’s departure from the European Union is of course another crucial change, and I will discuss its implications for financial stability in the EU in relation to central clearing. I will then argue that these developments show the urgent need for the EU to develop a deep and integrated single capital market.
The need for robust and resilient CCPs
Since the G20 agreed to make central clearing mandatory for over-the-counter (OTC) derivatives at the 2009 Pittsburgh summit, CCPs have become central pieces of the global financial infrastructure. Some CCPs are systemically relevant for multiple jurisdictions in view of the direct and indirect clients they serve worldwide and their interconnectedness with systemically important global banks.
We have seen progress in making global CCPs safer and more resilient, starting with the safeguards introduced to address the shortcomings that the global financial crisis revealed. Today, clearing risks are much lower than they were ten years ago. And the robustness that CCPs have displayed since the outbreak of the pandemic shows that regulatory efforts are paying off.
We should, however, continue to strengthen the resilience of CCPs. Last March we saw spikes in volatility and trading activity, coupled with a surge in liquidity and credit risk at the global level. Such situations call for closer cross-border regulatory, supervisory and oversight cooperation between CCPs, banks and public authorities.
To prevent market fragmentation and preserve financial stability, both domestically and internationally, in the face of such adverse shocks, CCPs must meet the highest standards of financial and operational risk management. And an enhanced dialogue is necessary between CCPs, clearing banks and clients to ensure that, while managing their risks prudently, they each consider the impact that their actions may have on others and on the entire financial system.
Central clearing is critical for sharing and managing risks effectively, and thus for supporting economic growth. Euro-denominated central clearing must not be a source of instability in the euro area or hamper the transmission of monetary policy. If disruptions in systemically important clearing services are not managed appropriately, they could be channelled through the large payment flows between CCPs and their participants, with knock-on effects on the smooth functioning of our payment and banking systems. The reverberations could reach financial markets and the instruments we rely on to perform central banking activities.
The post-Brexit clearing landscape
We need to consider carefully the implications of the United Kingdom’s departure from the EU, in particular in relation to the derivatives transactions of EU entities.
The City of London has long been a leading central clearing hub for EU banks and their clients, who have relied on UK CCPs for the clearing of OTC derivatives of all asset classes and in all currencies. UK CCPs hold a dominant position for the clearing of euro-denominated interest rate derivatives and credit default swaps, with a market share of about 80% and 40% respectively.
Brexit has made it urgent to consider the extent to which the EU should depend on non-EU countries for critical market infrastructure. With respect to derivatives clearing, since 1 January 2021 UK CCPs have been temporarily considered equivalent to EU CCPs from an oversight and regulatory perspective, so as to avoid potential cliff-edge financial stability risks. This equivalence decision by the European Commission is valid for 18 months, until 30 June 2022.[2] Meanwhile, industry stakeholders are encouraged to reduce their EU exposures to UK CCPs. The Commission has set up a working group with EU authorities and industry to address the issues involved and to facilitate the transfer of derivatives contracts denominated in euro or other EU currencies to EU CCPs.
From a supervisory perspective, UK CCPs have been recognised as third-country CCPs by the European Securities and Markets Authority (ESMA).[3] And two UK CCPs have been recognised as being systemically important for the EU (Tier 2 CCPs). In line with the provisions of the European Market Infrastructure Regulation, this means that they are subject to ESMA’s supervision.
This set-up helps to ensure that Tier 2 CCPs comply with EU regulatory standards. During this 18-month period of equivalence, ESMA will assess whether this set-up is sufficient to address risks to EU financial stability emanating from these two systemically important UK CCPs. As part of its responsibility for issuing the euro, the Eurosystem – which comprises the ECB and national central banks of the euro area – will develop its own stance on the matter and will contribute to ESMA’s assessment. At the end of this process, ESMA may recommend that the Commission deny the UK CCPs recognition to provide certain clearing services or activities in the EU if they pose excessive risks to financial stability. If this recommendation were to affect euro-denominated clearing services, the Eurosystem’s agreement would also be required.
The ECB will consider the costs and benefits of any such measure very carefully, as we are well aware of its far-reaching impact on derivatives markets as well as the challenges this would pose for all involved. Requiring more critical services to be provided by EU CCPs would also make our domestic clearing landscape more systemically important, and would increase cross-border risks within the EU. In such a scenario, the current framework for supervising EU CCPs – which still largely relies on national authorities and gives ESMA and the Eurosystem a limited role – would not be fit for purpose. In this situation, it would be essential for EU authorities to have control over clearing activities that are systemic to the EU and critical to the transmission and conduct of monetary policy. This would require the EU dimension of CCP supervision to be scaled up.
Investors are adapting to the post-Brexit landscape. For example, in January 2021 the trading of euro-denominated shares moved from London to venues in Amsterdam and Paris. This followed the Markets in Financial Instruments Regulation (MiFIR) requiring that shares listed in the EU only be traded by EU market participants on EU-regulated venues, or on third-country infrastructures considered “equivalent” by the Commission. The trading of EU carbon contracts is also expected to move from London to Amsterdam. For OTC derivatives, the redistribution of trading has been less clear-cut in direction, with dealers moving some activities to EU trading venues and others to US venues, the latter having equivalence arrangements with both the EU and the United Kingdom.
Towards a well-functioning capital markets union in the EU
The events of the past year – the pandemic and Brexit – have put renewed emphasis on the need for the EU to have a well-functioning capital markets union. In fact, EU leaders have agreed to finance the recovery from the pandemic by borrowing collectively through financial markets.
The issuance of high-quality euro-denominated sovereign bonds under the Next Generation EU (NGEU) recovery fund is a step towards achieving deeper, more complete and liquid capital markets and establishing a European safe asset. As the Commission intends to raise 30% of the €750 billion recovery fund by issuing green bonds, NGEU is also expected to contribute to further developing sustainable and green finance.
In parallel, the Commission has set out 16 specific actions to boost the EU’s capital markets union, which are aligned with many of the ECB’s own priorities.[4] These actions aim to deepen and further integrate European capital markets, in order to allow investors, savers, firms and market infrastructures alike to access a full range of services and products, regardless of where they are in the EU.
A deep, single capital market will also strengthen the international role of the euro,[5] as further developed euro-denominated markets, derivatives and benchmarks will reduce transaction costs, curb spreads and mitigate rollover risks. This will in turn attract foreign investors and widen the possibilities of using the euro in international transactions.
Conclusion
Let me conclude. Assessing potential vulnerabilities in the light of current challenges is key to making financial markets and infrastructures more resilient.
Authorities and market participants are reflecting on the lessons to be learned from the pandemic and this will be a key topic of today’s discussions. Our panellists will provide insights on CCP margin practices and the related funding and operational complexities that emerged last spring and which we need to address.
This conference will also provide an opportunity to discuss the direct and indirect implications of climate change for central clearing. Cash and derivatives markets have already developed products to facilitate sustainable investments and help hedge against climate risks.
Our panellists will also consider the changing clearing landscape, including some of the regulatory and supervisory cooperation issues I have mentioned and the global dimension of this debate.
Given the challenges currently faced by economies and financial markets, finding the right mix of internal capacity building, cooperation and innovation will be crucial to make central clearing even more resilient. I am sure this conference will give rise to a fruitful exchange of views.
Thank you for your attention.

Compliments of the European Central Bank.
The post ECB | Fabio Panetta Speech: Central clearing and the changing landscape first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Much of Europe rang in the start of 2021 with new lockdowns and weak economic activity. This same period saw the roll out of effective vaccines. While the end of the pandemic will remain a race between the virus and vaccines, there is now light at the end of the tunnel.
At the same time, government programs aimed at supporting lives and livelihoods have been highly successful. Amid the pandemic’s enormous human toll, these measures provided critical lifelines to people and have preserved the structure of the economy and the income of workers. The massive policy support saved millions of European firms, accounting for over 30 million jobs.
However, as the pandemic persists and measures—such as loan repayment moratoria—expire, bankruptcies could rise, leading to a surge in unemployment and nonperforming loans.
To support a rebound and strong recovery in 2021, emergency programs and lifelines will need to be maintained, but they also need to adapt.

‘Europe now needs to gradually change the support to firms from providing liquidity toward strengthening their equity.’

Relief policies for businesses
Almost a year into the pandemic, many European companies, especially micro and small enterprises in high-contact sectors, continue to reel from the shock of COVID-19. With containment measures preventing many firms from operating at full capacity or at all, government support programs—such as job retention schemes, which at their peak benefitted 54 million people—have been essential for businesses and people to survive. Liquidity (ready cash) provided to companies prevented cascading bankruptcies. It allowed banks to extend loans rather than amplify the downturn by adding a credit crunch.
In a recent IMF staff study (see presentation here), which covers 26 European countries (of which 21 are EU members), we estimate that without policy support, the share of illiquid firms in Europe would have more than doubled and that of insolvent firms would have almost doubled by end-2020.
But many companies are still short of equity
Public support so far is estimated to have filled 60 percent of European firms’ liquidity needs because of the COVID-19 shock, but only 30 percent of the equity shortfalls (the extent to which firms’ debt exceeds their assets). Even with this scale of support, the share of insolvent firms as a share of total firms is estimated to have increased by 6 percentage points. Equity shortfalls are largest for micro firms and small businesses, with current policies absorbing only one quarter of the equity gaps versus over two fifths for larger corporations.
Without additional equity support, some 15 million jobs are at risk. About 2 to 3 percent of GDP will be needed to close the equity gap and provide firms sufficient equity so they would no longer be in difficulty, focusing only on the firms that were solvent before COVID-19. Both private and public sector action is required.
How can this be done?
Liquidity support cannot address equity shortfalls. Policymakers will have to move the dial from debt-increasing liquidity support to more equity support for those firms that have good prospects after the pandemic.
Individual countries are coming up with innovative equity programs, but they face many implementation challenges. The public sector is not well placed to assess the viability of a large number of small businesses nor to monitor their performance. This will involve avoiding that public support is more attractive for bad than good firms—adverse selection—and preventing firms from mismanaging their business once they have received state support—moral hazard. Targeting support—something that is hard to do—will be critical to avoid wasting taxpayers’ money and should be improved. Mechanisms that target firms more accurately are likely to be more complicated, reducing take-up and timeliness of the aid. Another difficulty is how to ensure that the private sector does its part.
Involving banks, which know their clients and routinely assess business plans, is an important principle that can help address adverse selection. Incentivizing private investors to contribute equity mitigates moral hazard. Here are some examples:

France’s proposed program of participatory, subordinated loans envisions a central role for banks in selecting viable firms and retaining a share of these loans on their books—ensuring “skin in the game.”
In Italy’s program for small and medium-sized enterprises, private equity injections are encouraged by tax incentives and the government’s contribution is capped to a fraction of the private investors’ capital increase, who have to remain invested for some years.
Adequate contributions and burden sharing by investors is required by Ireland’s support scheme for small businesses, whereby Enterprise Ireland—a government agency—assesses firms’ plans to restore long-term viability with the help of market appraisals.

Healthier firms, stronger recovery
Europe now needs to gradually change the support to firms from providing liquidity toward strengthening their equity. For those firms that have to restructure debt or be liquidated, out-of-court debt restructurings and insolvency regimes will need to be enhanced. Healthier firms will forestall a return of “doom loops” between Europe’s real and financial sectors. Most importantly, healthier firms will create more jobs. Upskilling, training, and job search programs should help displaced workers find new jobs in sectors that are expanding. Countries will also need to invest in the green and digital transitions to boost resilience and productivity. This course of action will ensure a strong and lasting recovery after the pandemic.
Compliments of the IMF.
The post IMF | Staying Afloat: New Measures to Support European Businesses first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the Commission approved 226 projects in all 27 Member States that will support their efforts in designing and implementing national reforms to enhance growth. These support actions are delivered in the framework of the Technical Support Instrument (TSI) and will have a total budget of €102.6 million for the year 2021 to promote economic, social and territorial cohesion in the European Union.
Commissioner for Cohesion and Reforms, Elisa Ferreira, said: “Reforms are necessary to better the environment for businesses, reinforce the healthcare systems, strengthen social and educational systems and overall enhance the resilience of Member States and stakeholders when facing difficult challenges and global crises. The Technical Support Instrument is a powerful tool that can enable Member States to carry out the reforms they need for a sustainable growth.”
The TSI is the Commission’s main instrument to provide technical support to reforms in the EU. It is part of the Multiannual Financial Framework (MFF) 2021-2027 and of the Recovery Plan for Europe. It builds on the success of its predecessor, the Structural Reform Support Programme (SRSP), which since 2017 has provided more than 1.000 technical support projects in all Member States.
Reforms eligible for TSI support include, yet are not limited to, public administration, governance, tax policies, business environment, financial sector, labour market, education systems, social services, health care, green transition – e.g. the Renovation Wave – and digital services. Strengthening the institutional and administrative capacity to design and implement reforms and investments is essential to foster resilience and underpin recovery.
With an increased budget of €864 million over the period 2021-2027, the TSI can also provide technical support to help Member States prepare and implement the Recovery and Resilience Plans (RRPs), thus ensuring that they are better equipped to access financing of the Recovery and Resilience Facility (RRF). In total, more than 60% of the pre-selected TSI projects for 2021 are related to the implementation of the RRPs, while 30% focus on the Green Deal and 44% on the digital transition.
TSI support also helps Member States in effectively addressing the challenges identified in the Country-specific Recommendations.
All the information can be found in the adopted implementing Decision C(2021)1335 and first TSI Annual Work Programme.
Compliments of the European Commission.
The post EU Commission supports reform projects in Member States for more jobs and sustainable growth first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the European Commission published its annual report on the Safety Gate, which is the EU rapid alert system for dangerous consumer products helping to take dangerous non-food products off the market. The report shows that the number of actions taken by authorities following an alert is growing year by year, reaching a new record number of 5,377, compared to 4,477 in 2019. 9% of all alerts raised in 2020 concerned products related to COVID-19, mostly masks meant to protect but failing to do so. Other examples for dangerous COVID-19 related products notified in the Safety Gate are disinfectants containing toxic chemicals, such as methanol that can lead to blindness or even death if swallowed, or UV sanitizers that exposed users to strong radiation causing skin irritations.
Didier Reynders, Commissioner for Justice, said: “The Safety Gate has demonstrated to be   crisis-proof: during the COVID-19 pandemic, it has helped protect consumers by being a key instrument to efficiently and swiftly circulate information concerning dangerous products, such as unsafe masks or toxic disinfectants and remove them from the market. With protective tools such as this one, consumer rights are further guaranteed.”  
Main findings of the report
Surveillance action focused on COVID-19 related products that have become essential to all consumers and hence in 2020 there were 161 alerts on masks, 3 alerts on specific overalls, 13 alerts on hand disinfectants and 18 alerts on UV lamps supposed to function as sterilizers. The alerts circulated in the system continue this year.
In 2020, authorities from the 31 participating countries of the Safety Gate network (EU Member States plus Norway, Iceland, Liechtenstein and the UK) exchanged a total of 2,253 alerts on measures taken against dangerous products through the system. They reacted with 5,377 follow-up actions. This represents an increase of more than 20% from the 2019 number of follow-ups.
According to the report, toys are the most notified product category (27% of total notifications), followed by motor vehicles (21%) and electrical appliances and equipment (10%). This illustrates that market surveillance in the EU has a special focus on children, a vulnerable consumer group. In general, the most frequently flagged concerns related products causing injuries such as fractures or concussions (25%), followed by chemical components in products  (18%) and risks for children to choke (12%).
In comparison to last year, more online marketplaces are committing to improve the safety of the products they sell. Yesterday, two new signatories have joined the Product Safety Pledge initiative: Joom and Etsy. They thus promise to check products on Safety Gate are not for sale on their websites and to act quickly in case national authorities signal to them any dangerous products, which should be taken down.
Next steps
The Commission rewards businesses that go the extra mile to protect consumers with the EU’s Product Safety Award. This year’s edition, which was launched for applications yesterday, will focus on initiatives aimed at protecting vulnerable consumers in particular and on the use of new technologies to enhance product consumer safety. The deadline to apply is April 30th. You can find more information here.
Background
Since 2003, the Safety Gate enables quick exchange of information between EU/EEA member states, the UK and the European Commission about dangerous non-food products posing a risk to health and safety of consumers. This way, appropriate follow-up action can be taken and products can be banned from the market.
Matching with the publication of the report, the Commission has launched its fully revamped Safety Gate public website with a modern and user-friendly interface to speed up and facilitate the notification process. Pages are progressively translated into all EU languages, Icelandic and Norwegian. Businesses can also use the Business Gateway to quickly and efficiently inform national authorities about security concerns regarding a product that they have put on the market.
Another action on consumer protection is the https://ec.europa.eu/info/files/product-safety-pledge_en , which sets out specific voluntary actions of marketplaces to swiftly remove offers of unsafe products from their platforms. To date, eleven online marketplaces have signed this agreement to cooperate with Member States to remove dangerous products from their websites: bol.com, eMAG, Wish.com, AliExpress, Amazon, eBay, Rakuten France, Allegro, Cdiscount, and yesterday, Etsy and Joom.
Compliments of the European Commission.
The post Protecting European consumers: Safety Gate efficiently helps take dangerous COVID-19 products off the market first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Speech by Governor Lael Brainard at the 2021 Annual Washington Conference, Institute of International Bankers (via webcast) |
It has now been one year since the devastating effects of the first wave of the COVID-19 pandemic hit our shores, a year marked by heartbreak and hardship.1 We look forward to a brighter time ahead, when vaccinations are widespread, the recovery is broad based and inclusive, and the economy fully springs back to life. But we should not miss the opportunity to distill lessons from the COVID shock and institute reforms so our system is more resilient and better able to withstand a variety of possible shocks in the future, including those emanating from outside the financial system.
The Dash for Cash
Investor sentiment shifted dramatically in the early days of March 2020 with the realization that COVID would disrupt the entire global economy. Short-term funding markets became severely stressed as market participants reacted to the advent of this low-probability catastrophic event. The abrupt repositioning and repricing of portfolios led to a dash for cash, as even relatively safe Treasury holdings were liquidated, volatility spiked, and spreads in Treasury and offshore dollar funding markets widened sharply. Forceful and timely action by the Federal Reserve and other financial authorities was vital to stabilize markets and restore orderly market functioning.
Although some parts of the financial system that had undergone significant reform in the wake of the Global Financial Crisis remained resilient, the COVID stress test highlighted significant financial vulnerabilities that suggest an agenda for further financial reform. I will briefly comment on these areas of vulnerability as well as areas where earlier reforms led to greater resilience.
Short-Term Funding Market Vulnerabilities
The COVID shock brought to the fore important vulnerabilities in the systemically important short-term funding markets that had previously surfaced in the Global Financial Crisis. Signs of acute stress were readily apparent in intermediaries and vehicles with structural funding risk, particularly in prime money market funds (MMFs). Indeed, it appears these vulnerabilities had increased, as assets held in prime MMFs doubled in the three years preceding last March. When the COVID shock hit, investors rapidly moved toward cash and the safest, most liquid financial instruments available to them. Over the worst two weeks in mid-March, net redemptions at publicly offered institutional prime MMFs amounted to 30 percent of assets. This rush of outflows as a share of assets was faster than in the run in 2008, and it appears some features of the money funds may have contributed to the severity of the run.2
The run in March forced MMFs to rapidly reduce their commercial paper holdings, which worsened stress in short-term funding markets. Funding costs for borrowers shot up, and the availability of short-term credit at maturities beyond overnight plunged. These markets provide the short-term credit many businesses need to keep operating and meet payrolls. So when short-term funding markets shut down, it can imperil many businesses, too.
For the second time in 12 years, a run on MMFs triggered the need for policy intervention to mitigate the effect on financial conditions and the wider economy. To head off the risk of widespread business failures and layoffs, the Federal Reserve took a number of actions, including announcing the Commercial Paper Funding Facility on March 17 and the Money Market Mutual Fund Liquidity Facility on March 18, 2020. Following the announcement of these facilities, prime MMF redemptions slowed almost immediately, and other measures of stress in short-term funding markets began to ease.
The March 2020 turmoil highlights the need for reforms to reduce the risk of runs on prime money market funds that create stresses in short-term funding markets. The President’s Working Group on Financial Markets has outlined several potential reforms to address this risk, and the Securities and Exchange Commission recently requested comment on these options.3 If properly calibrated, capital buffers or reforms that address the first-mover advantage to investors that redeem early, such as swing pricing or a minimum balance at risk, could significantly reduce the run risk associated with money funds. Currently, when some investors redeem early, remaining investors bear the costs of the early redemptions. In contrast, with swing pricing, when a fund’s redemptions rise above a certain level, the investors who are redeeming receive a lower price for their shares, reducing their incentive to run.4 Similarly, a minimum balance at risk, which would be available for redemption only with a time delay, could provide some protection to investors who do not run by sharing the costs of early redemptions with those who do. Capital buffers can provide dedicated resources within or alongside a fund to absorb losses and reduce the incentive for investors to exit the fund early.
To be sure, domestic money market funds are not the only vulnerable cash-management investment vehicles active in U.S. short-term funding markets. For example, offshore prime money funds, ultrashort bond funds, and other short-term investment funds also experienced stress and heavy redemptions last March. The runs on offshore MMFs that hold dollar-denominated assets like commercial paper underscore the importance of working with international counterparts to increase the resilience of short-term funding markets. We are supporting the work of the Financial Stability Board to assess options for mitigating the vulnerabilities of MMFs globally and report on them later this year.
The COVID shock also highlighted the structural vulnerabilities associated with the funding risk of other investment vehicles that offer daily liquidity while investing in less-liquid assets, such as corporate bonds, bank loans, and municipal debt. Funds that invest primarily in corporate bonds saw record outflows in March 2020. These open-end funds held about one-sixth of all outstanding U.S. corporate bonds prior to the crisis. Bond mutual funds, including those specializing in corporate and municipal bonds, had an unprecedented $250 billion in outflows last March, far larger than their outflows at any time during the 2007–09 financial crisis. The associated forced sales of fund assets contributed to a sharp deterioration in fixed-income market liquidity that necessitated additional emergency interventions by the Federal Reserve. In assessing possible reforms to address this run risk, swing pricing could be helpful, because it reduces the first-mover advantage for running from a fund by imposing a cost when redemptions are high. Swing pricing has been used for more than a decade in European mutual funds, where it has been shown to slow redemptions in stress events.5 In the United States, mutual funds have not adopted swing pricing, in part because of technical obstacles.
Treasury Market Functioning
The COVID shock also revealed vulnerabilities in the market for U.S. Treasury securities. The U.S. Treasury market is one of the most important and liquid securities markets in the world, and many companies and investors treat Treasury securities as risk-free assets and expect to be able to sell them quickly to raise money to meet any need for liquidity. Trading conditions deteriorated rapidly in the second week of March as a wide range of investors sought to raise cash by liquidating the Treasury securities they held. Measures of trading costs widened as daily trading volumes for both on- and off-the-run securities surged. Indicative bid-ask spreads widened by as much as 30-fold for off-the-run securities. Market depth for the on-the-run 10-year Treasury security dropped to about 10 percent of its previous level, and daily volumes spiked to more than $1.2 trillion at one point, roughly four standard deviations above the 2019 average daily trading volume. Stresses were also evident in a breakdown of the usually tight link between Treasury cash and futures prices, with the Treasury cash–futures basis—the difference between prices of Treasury futures contracts and prices of Treasury cash securities eligible for delivery into those futures contracts—widening notably.
Selling pressures were widespread, reflecting sales by foreign official institutions, rebalancing by asset managers, a rapid unwinding of levered positions, and precautionary liquidity raising. Available data suggest that foreign institutions liquidated about $400 billion in Treasury securities in March, with more than half from official institutions and the remainder from private foreign investors, at a time when offshore dollar funding markets also experienced acute stress. Domestic mutual funds sold about $200 billion during the first quarter, selling their less-liquid Treasury securities in order to raise cash to meet investor redemptions. Hedge funds reduced long cash Treasury positions by an estimated $35 billion.6
Dealers play a central role in the Treasury market by buying and selling securities and providing financing to investors. Their capacity or willingness to intermediate these flows was strained amid the elevated uncertainty and intense and widespread selling pressure in mid-March. Operational adjustments associated with the rapid move to remote work may also have inhibited intermediation.
The acute stresses in the Treasury market necessitated emergency intervention by the Federal Reserve at an unprecedented scale. The Federal Open Market Committee authorized purchases of Treasury securities and agency mortgage-backed securities (MBS) “in the amounts needed” to support smooth market functioning of these markets.7 Between March 12 and April 15, the Federal Reserve increased its holdings of Treasury securities by about $1.2 trillion and agency MBS by about $200 billion. The Federal Reserve provided overnight and term repurchase agreement (repo) operations to address disruptions in Treasury financing markets. These actions rapidly restored market functioning, and a variety of indicators had returned to pre-COVID levels by the summer.8
While the scale and speed of flows associated with the COVID shock are likely pretty far out in the tail of the probability distribution, the crisis highlighted vulnerabilities in the critically important Treasury market that warrant careful analysis. A number of possible reforms have been suggested to strengthen the resilience of the Treasury market. For instance, further improvements in data collection and availability have been recommended to enhance transparency related to market participants, such as broker-dealers and hedge funds. Some have suggested that the Federal Reserve could provide standing facilities to backstop repos in stress conditions, possibly creating a domestic standing facility or converting the temporary Foreign and International Monetary Authorities (FIMA) Repo Facility to a standing facility.9 Other possible avenues to explore include the potential for wider access to platforms that promote forms of “all to all” trading less dependent on dealers and, relatedly, greater use of central clearing in Treasury cash markets.10 These measures involve complex tradeoffs and merit thoughtful analysis in advancing the important goal of ensuring Treasury market resilience.
Offshore Dollar Funding Markets
The global dash for cash also led to severe stress in offshore dollar funding markets, where foreign exchange swap basis spreads increased sharply to levels last seen in the Global Financial Crisis. Foreign banking organizations serve as key conduits of dollar funding for foreign governments, central banks, businesses, nonbank financial institutions, and households.11 They hold $14 trillion in dollar-denominated claims—about half of the total global dollar claims of banks. The Federal Reserve and several other central banks responded swiftly to distress in the offshore dollar funding markets by announcing the expansion and enhancement of dollar liquidity swap lines on March 15, followed on March 19 by the reopening of temporary swap lines with the nine central banks that had temporary agreements during the Global Financial Crisis. On March 30, the Federal Reserve introduced a new temporary FIMA Repo Facility to support the liquidity of Treasury securities held by foreign monetary authorities, an important innovation. Following these interventions, foreign exchange swap basis spreads started moving down almost immediately and within a few weeks reached their levels before the COVID shock.
Central Clearing
The reforms put in place pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in response to the previous crisis appear to have supported the resilience of the financial system as it absorbed the COVID shock. Importantly, regulators instituted global reforms to encourage and, in some cases, mandate central clearing after observing the loss of confidence in key banking intermediaries during the Global Financial Crisis associated with the opaque web of bilateral derivatives contracts. As a result, during the COVID turmoil, the greatly expanded scope of central clearing, with the attendant reduction in counterparty and settlement risks, supported the orderly functioning of critical securities and derivatives markets amid sharply increased trading volumes and spiking volatility. Moreover, several central clearing platforms (CCPs) successfully handled problems that emerged at a few smaller market participants, without noticeable spillovers to other markets and institutions.
However, as part of the risk controls that are inherent in central clearing, the COVID market turmoil generated exceptionally large flows of cash through CCPs from market participants with mark-to-market losses to those participants with corresponding gains. Furthermore, during the March COVID turmoil, a number of CCPs collected significantly higher financial resources from their members to protect against increased risk as captured by their risk models. These demands for liquidity were met adequately, and the markets operated efficiently and effectively, although the sudden spikes in CCP requirements may have stressed the liquidity positions of some trading firms. And while CCPs performed well during this period of stress, forceful public emergency interventions and the strong capitalization of banks likely mitigated the risks of large clearing member defaults.
The COVID-19 shock presents an important opportunity to reflect on lessons learned about central clearing by the public and private sectors. CCPs could consider the effects of the market dysfunction on their liquidity risk-management plans, including their assumptions regarding the ability to raise cash from noncash assets or securities. In addition to reassessing their liquidity planning, CCPs could also assess the tradeoffs between their own risk-management decisions and broader financial stability concerns, particularly in light of how CCPs may have contributed to deleveraging by some market participants in March by the magnitude of the increases in financial resources they collected when trading and volatility spiked. CCPs could assess their margin models, consider improvements to reduce pro-cyclicality, and consider increased transparency to help clearing members anticipate margin calls during periods of volatility. The holistic review by the Financial Stability Board, in which we participate, could provide important insights into these issues.12
Bank Capital and Liquidity
The resilience of the banking sector in response to the COVID shock underscores the importance of guarding against erosion of the strong capital and liquidity buffers and risk-management, resolution, and stress-testing programs put in place pursuant to the Dodd-Frank Act. Banks entered the pandemic with strong capital and liquidity buffers, especially those banks whose size and complexity are systemically important. Strong capital and liquidity buffers allowed the banking system to accommodate the unprecedented demand for short-term credit from many businesses that sought to bridge the pandemic-related shortfalls in revenues. Banks’ capital positions initially declined because of this new lending and strong provisioning for loan losses but have since risen above their pre-pandemic levels, reflecting better-than-expected loan performance and a reduction in credit provision as well as caps on dividends and restrictions on share repurchases in the past several quarters.
Strong capital and liquidity positions will remain important, as banks still face significant challenges—including an environment of higher-than-normal uncertainty. For instance, some sectors of commercial real estate loans and commercial and industrial loans are more vulnerable than before the crisis. Similarly, net interest margins could remain in the lower part of their historical ranges for some time. Although losses and delinquency rates on bank loans are currently low, performance could deteriorate as borrowers exit forbearance, with particularly hard-hit businesses and households facing arrears on rent and mortgage payments.13 Recent developments have been encouraging, but downside risks remain, which could delay recovery and lead to higher losses.
Bank resilience benefited from the emergency interventions that calmed short-term funding markets and from the range of emergency facilities that helped support credit flows to businesses and households. While the results of our latest stress test released in December 2020 show that the largest banks are sufficiently capitalized to withstand a renewed downturn in coming years, the projected losses take some large banks close to their regulatory minimums.14 According to past experience, banks that approach their regulatory capital minimums are much less likely to meet the needs of creditworthy borrowers. It is important for banks to remain strongly capitalized in order to guard against a tightening of credit conditions that could impair the recovery.
Cyclical Vulnerabilities
Structural vulnerabilities such as those discussed earlier could interact with cyclical vulnerabilities in the financial system, potentially magnifying the associated risks. Valuations are elevated in a number of asset classes relative to historical norms. After plunging as the pandemic unfolded last spring, broad stock price indexes rebounded to levels well above pre-pandemic levels. Some observers also point to the potential for stretched equity valuations and elevated volatility due to retail investor herd behavior facilitated by free online trading platforms. Risk appetite in credit markets is also elevated, with high-quality investment-grade (IG) corporate debt trading at slightly negative real yields and issuance of leveraged loans returning to 2019 levels. While financial markets are inherently forward-looking, taking into account the prospects of widespread vaccinations and substantial fiscal support, a variety of risks related to the virus could result in a sudden change in investor risk sentiment. This could, for instance, trigger outflows from corporate bond mutual funds and other managed funds with an investor base that is sensitive to fund performance. Commercial real estate prices are susceptible to declines if the pace of distressed transactions picks up or if the pandemic leads to permanent changes in patterns of use—for instance, a decline in demand for office space due to higher rates of remote work or for retail space due to a permanent shift toward online shopping.
Debt loads at large nonfinancial firms were high coming into the pandemic and remain so. Measures of leverage at large firms remain near the historical highs reached at the beginning of 2020, with the aggregate book value of debt exceeding 35 percent of assets in the third quarter. A large portion of IG debt is currently at the lowest IG rating, making this debt vulnerable to downgrades. Such downgrades may bring insurers, mutual funds, and other regulated institutional investors closer to internal or statutory thresholds on their holdings of non-IG securities, potentially forcing these institutions to shed assets.
Over a longer horizon, changes in the economic environment associated with low equilibrium interest rates, persistently below-target trend inflation, and low sensitivity of inflation to resource utilization could be expected to contribute to a low-for-long interest rate environment and reach-for-yield behavior. In these kinds of environments, it is valuable to deploy macroprudential tools, such as the countercyclical capital buffer, to mitigate potential increases in financial imbalances.
The Path Ahead
The COVID shock subjected the financial system to an acute stress that necessitated emergency interventions on a massive scale by financial authorities around the world. The COVID turmoil underscores the importance of ensuring the financial system is resilient to a wide range of shocks, including those emanating from outside the financial system. Regulators and international standard-setting bodies have an opportunity to draw important lessons from the COVID shock about where fragilities remain, such as in prime MMFs and other vehicles with structural funding risk. A number of common-sense reforms are needed to address the unresolved structural vulnerabilities in nonbank financial intermediation and short-term funding markets.
Compliments of the U.S. Federal Reserve.
The post U.S. FED | Speech: Some Preliminary Financial Stability Lessons from the COVID-19 Shock first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.