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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.