Financial Stability Review

The COVID-19 pandemic is an enormous health and economic challenge which raises significant risks for financial systems around the world, including in Australia.

• Expand or close section 'Global economy'.After a period of heightened volatility and stress following the onset of the pandemic, financial systems have fared well. They have cushioned rather than amplified the shock. This reflected post-global financial crisis reforms that strengthened banks and unprecedented actions taken by policy makers. However, with economies experiencing large contractions in output the focus has shifted from liquidity to the solvency of borrowers as the expected defaults will result in credit losses for lenders. The global economic recovery is going to take time and its path will be uneven and dependent on the course of the virus. Some financial systems face pre-existing risks from weak bank profitability and high household, business or government debt. Risks to financial systems are therefore likely to remain elevated for some time to come.
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