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COVID-19: Financial system stable ‘for now,’ but vulnerabilities rising – IMF

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Policymakers’ unprecedented response to the global health crisis has contained risks to the financial system, but a prolonged recession or policy missteps could ignite growing vulnerabilities worldwide, the International Monetary Fund warned on Tuesday.

Agency reports said that the world’s largest multilateral lender said that some banking systems could experience capital shortfalls should the economic downturn in those regions continue, and growing debt burdens in both the private and public sectors could pose future challenges to financial markets.

Given ongoing uncertainty over how quickly the COVID-19 pandemic can be brought under control, the IMF warned that policymakers need to be prepared to continue to provide broad support, and gradually withdraw it only once the pandemic is fully under control.

“As economies reopen, accommodative policies will be essential to ensure that the recovery takes hold and becomes sustainable,” the group wrote in its Global Financial Stability Report ahead of its virtual summit with the World Bank in place of its usual fall in-person gathering.

“Many countries have entered the crisis with elevated preexisting vulnerabilities in some sectors – asset management, nonfinancial firms, and sovereigns – and vulnerabilities are rising,” it added.

Speaking during a press briefing on Tuesday, the report’s authors Tobias Adrian and Fabio Natalucci, director and deputy director respectively of the IMF’s Monetary and Capital Markets Department, warned that the crisis was not yet over, but that the global financial system still has sufficient capital to withstand further adverse shocks.

They said, however, that there is a “weak tail” of banks, particularly in emerging markets, that could struggle. Globally systemically important banks are “generally more stable than the non systemic banks” around the world, while European banks are “somewhat more vulnerable” than North American banks, Adrian added.

The growing role of nonbanks in the financial system poses another risk, as these companies do not face the same strict capital and liquidity requirements as banks, the IMF said.

For example, the IMF warned that asset managers could be forced into “fire sales” if they were to face significant losses in another market downturn. The IMF also flagged growing links between nonbanks and traditional banks, suggesting problems at nonbanks could at some point spread to traditional lenders.

On the corporate front, the IMF said that companies, already burdened with very high levels of debt, could begin to face solvency issues if the recession drags on.

Larger companies able to access capital markets are better positioned to weather a longer downturn, but small and medium-sized companies, particularly in industries directly affected by lockdowns, are more vulnerable.

Once the pandemic is under control, the IMF said global policymakers should focus on rebuilding bank buffers, as well as stricter rules for nonbanks.

Regulators will also need to watch out for the “unintended consequences” of emergency policy measures, Natalucci and Adrian warned during the press briefing, such as financial institutions taking on excessive risk if interest rates remain low or even negative for a long time.

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Special COVID-19 probe crippled by infections among CCD sleuths: AG calls for new police team

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By Shamindra Ferdinando

Brandix Apparel Limited yesterday (29) said that the company would fully cooperate with relevant authorities in the investigation ordered by the Attorney General (AG). A spokesperson for the company said so when The Island sought a clarification with regard to AG Dappula de Livera, PC, directing the police to launch a criminal investigation into the alleged lapses on the part of the company as well as those officials leading to the devastating COVID-19 outbreak.

The Minuwangoda eruption, which happened in the first week of October is widely believed to be the cause of the fast expanding Peliyagoda cluster.

Asked whether the police had contacted the Brandix management as regards the investigation and sought access to Brandix management and workers at its Minuwangoda apparel manufacturing facility as well as records at the Minuwangoda facility, the spokesperson said: “We will work with the relevant authorities in this regard”.

The Colombo Crime Division (CCD) tasked with the probe has suffered a serious setback due to a section of its officers being tested positive for COVID-19. Authoritative sources said that the CCD lacked sufficient strength to carry out the investigation.

AG de Livera early this week told DIG Ajith Rohana that a progress report should be submitted to him by or before Nov. 13.

Sources said that the badly depleted CCD was not in a position to conduct the high-profile investigation, in addition to other ongoing inquiries. The AG has directed the Acting IGP to constitute a special team of law enforcement officers to conduct the investigation. Sources acknowledged the urgent need for a thorough inquiry into the far worse second corona wave. Sources said that the AG issued fresh instructions in that regard after the crisis in the CCD was brought to his notice.

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Most garment workers under self-quarantine left to fend for themselves

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By Rathindra Kuruwita

A large number of garment workers who were undergoing self-quarantine in Minuwangoda did not receive any assistance, Chamila Thushari of the Dabindu Collective, a labour organisation that works with garment workers, told The Island yesterday.

She said that those who were under self-quarantine did not have money to purchase food and even those who were willing to help could not reach them.

“Some of them have received food parcels from their work places but that is not adequate. Most others have not received any assistance. Matters will only get worse after curfew is imposed throughout the Western Province,” Thushari said.

Most of these workers are undergoing self-quarantine at their boarding places, which also house individuals who still work in garment factories. “Although there is a curfew, they can go to work. These are perfect incubators for the virus,” she said.

Thushari said that every day between 20-30 workers under self-quarantine, tested positive for COVID-19.

There were no public health inspectors to monitor the boarding houses of garment workers to ensure that COVID-19 prevention measures were being followed, she said.

“Not even Grama Niladaris visit them,” Chamila said.

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SJB requests separate seats for its dissidents

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Chief Opposition Whip and Kandy District MP Lakshman Kiriella has written to Speaker Mahinda Yapa Abeywardena requesting him to make arrangements to provide separate seats to the nine MPs who had voted with the government for the 20th Amendment to the Constitution recently.

The letter dated yesterday said that the SJB parliamentary group had decided to expel MPs Diana Gamage, A. Aravind Kumar, Ishak Rahuman, Faisal Cassim, H. M. M. Haris, M.S. Thowfeeq, Nazeer Ahmed, A.A.S.M. Raheem and S.M.M. Musharaf and it requests the Speaker to make separate seating arrangements for these MPs in the Chamber.

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