During the course of ISDA’s virtual Annual General Meeting earlier this month, we were fortunate to be joined by senior regulators and policy-makers from around the world to reflect on, among other things, the lessons learned from the coronavirus pandemic. I agree with their observations that the COVID-19 crisis demonstrated the resilience of the financial system and financial institutions, while also recognizing there are areas that could be further improved to ensure markets remain resilient in the future.

This week, ISDA published a detailed report in collaboration with the Financial Services Forum and the Institute of International Finance that has drawn similar conclusions. In short, the regulatory reforms that were put in place after the financial crisis enhanced the strength and resilience of the financial system, enabling banks to provide financing, facilitate access to capital and support the functioning of markets during the pandemic.

After any major economic shock such as the one we experienced in March and April 2020, it is important that rigorous analysis is carried out to determine what happened and where changes in regulation or market practice might be warranted. It’s easy to forget just how destabilizing those first weeks of the pandemic were. Global markets crashed and liquidity became scarce as the dash for cash prompted central banks to pump trillions of dollars into the financial system.

As a wave of lockdowns around the world forced corporate and government revenues into sharp decline, demand for bank lending increased alongside a surge in corporate and sovereign bond issuance. While some markets saw a drop in liquidity, the report shows that large banks increased inventory to support clients, and market making in derivatives and secondary markets strengthened. Banks also provided important backing for government intervention to support households and businesses by deferring loan repayments and offering other support measures.

The report confirms what many policy-makers have noted in recent months: that derivatives markets and market participants were much better placed to weather the crisis due to the regulatory reforms implemented over the past decade. Basel III has strengthened bank capital and liquidity positions, while mandatory clearing and margining of non-cleared derivatives have reduced counterparty credit risk.

These reforms meant that as economic conditions deteriorated, banks were able to provide credit and financial intermediation to the real economy in a way that had not been possible during the last crisis. When combined with the quick and decisive intervention of central banks and regulators, this helped to restore confidence and stabilize financial markets, thereby limiting the extent of the economic impact.

These post-crisis reflections are not only about what went well, however. Our report highlights the need to use the pandemic as a fresh data point for the consideration of important outstanding issues, including the efficacy of risk-insensitive leverage requirements, the usability of capital and liquidity buffers, and the potential procyclicality of elements of the regulatory framework. As vaccines are rolled out and we continue the hopeful journey back to normality, these issues should be carefully considered to build even greater resilience for the next crisis.