Author : Joscha Wullweber
Publisher :
ISBN 13 :
Total Pages : 85 pages
Book Rating : 4.:/5 (129 download)
Book Synopsis The COVID-19 Financial Crisis, Global Financial Instabilities and Transformations in the Financial System by : Joscha Wullweber
Download or read book The COVID-19 Financial Crisis, Global Financial Instabilities and Transformations in the Financial System written by Joscha Wullweber and published by . This book was released on 2020 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt: This report discusses the overall instabilities inherent in the current global financial system in general, and the system's performance in reaction to the COVID-19 pandemic in particular. It explains why the financial crisis induced by the COVID-19 outbreak was not an unpredictable black swan event in an otherwise stable system, and demonstrates that where the financial system is concerned, instability is the rule rather than the exception. The report holds that the financial system was already in crisis mode when the pandemic hit. For the past 20 years, the shadow banking system has been growing at a steady pace. Short-term repo market funding has been greatly accelerating. The crisis susceptibility of today's financial system can mainly be explained by the fact that the stability of this financial system is strongly grafted on the stabilization of the shadow banking system, and that although the shadow banking system is inherently prone to crisis, it nevertheless remains largely unregulated. Moreover, since the last global financial crisis, new unsecure credit and debt structures have been building up. Private debt burdens have been soaring. High-frequency trading and algorithmic trading have become increasingly important. Exchange traded funds (ETFs) and portfolio trading have experienced rapid growth. The eurocrisis remains unsolved and the structural and politico-economic problems within the eurozone persist. Hence, downside risks to financial stability were already prevalent and conducive to further instability before the crisis began. In a crisis situation, existing risks tend to become even more pronounced. The COVID-19 crisis has once again demonstrated that financial markets in their current form do not act as a firewall to avert economic downturns. Central banks have had to step in to prevent large-scale insolvency by providing credit directly to large employers as well as to small and medium-sized businesses to enable them to maintain their business operations and retain their employees. More than ever before, the demand and supply of credit, and thus the functioning of financial markets as a whole, are determined by central bank monetary policy. However, even if central bank intervention does manage to stabilize financial markets, that stability will remain highly precarious unless strong and appropriate rules for financial markets are in place and governments complement monetary policy with forceful and comprehensive fiscal policies.