The global financial market has been going through a tumultuous time since the outbreak of the COVID-19 pandemic. The unprecedented crisis has taken a toll on businesses and economies worldwide. However, the central banks and regulators are stepping up their efforts to ensure stability and prevent further deterioration of the situation.

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Central bankers have been active every weekend doing investment banker's jobs. The Swiss central bank, Swiss National Bank (SNB) worked over the weekend to get UBS to agree to take over crisis-hit rival Credit Suisse for USD 3.2 billion, the SNB pledging up to USD 108 billion in liquidity assistance. Last weekend the US regulators similarly went into investment banking mode to recue Silicon Valley Bank (SVB) and Signature Bank. But neither the US markets, nor the European markets nor the global financial markets are convinced of near-term stability in the banking system or in the financial markets.

In an interview with CNBC-TV18, Srinivasan Varadarajan, Non-Executive Chairman of Union Bank of India said that the central banks are playing a critical role in safeguarding the financial system. They are providing backstops to ensure that things don't worsen from here. Their measures are aimed at preventing a complete collapse of the market.

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“Central banks are trying to provide the liquidity backstops, trying to make sure that things do not worsen from here as each of the stakeholders including banks, and whatever type of banks they are, need to assess what is the best way forward and the central banks for that time need to provide these backstops,” Varadarajan said.

Meanwhile, Neeraj Gambhir, Group Executive and Head-Treasury, Markets and Wholesale Banking Products at Axis Bank said that the regulators are pro-active this time, providing liquidity to the market in case of insolvencies. This move is aimed at preventing any widespread contagion that could further destabilise the market.

He said, “A lot of learnings have been taken from the global financial crisis and the alacrity and decisiveness with which the central banks, policymakers and regulators are moving in West in terms of solving the problem spots, whether it is SVB or Credit Suisse, not only making sure that these institutions are addressed, but also by providing liquidity to the market and the fact that S&P has been generous in terms of its liquidity provision to UBS - all these factors are pointing that regulators are very proactive now.”

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“There is a playbook that goes back to what was done at the time of Global Financial Crisis (GFC) in 2008 and that playbook is being brought forward quite proactively. So, I am hoping that this does not convert itself into a bigger contagion,” he added.

Talking about India, Gambhir said that despite the challenging circumstances, the Indian market is quite firm. He also highlighted that the bond yields in India are range-bound, and the country has sufficient liquidity. This is an indication that the market is resilient and can weather the storm.

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For the entire discussion, watch the accompanying video

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