FSB Seeks Views on Debt Overhang Issues of Non-Financial Corporates
The Financial Stability Board (FSB) published a discussion paper on approaches to the debt overhang issues of non-financial corporates in the context of the COVID-19 pandemic. The discussion paper aims to gather views, from public, on the practical extent of debt overhang issues in a post COVID-19 environment. It also aims to facilitate a dialog between financial authorities and external stakeholders, including financial institutions, restructuring experts and borrowers, on emerging policy approaches and market practices that could prove effective to support a smooth transition out of debt overhang issues. FSB is requesting feedback on the discussion paper by April 08, 2022.
The discussion paper looks at debt overhang issues from three angles: assessing companies’ viability in the context of COVID-19, facilitating and incentivizing timely restructuring and refinancing of the debt of viable companies and ways to facilitate exit of unviable companies, and dealing with a large number of companies with debt restructuring needs, with focus on small and medium-size enterprises (SMEs) and micro companies. The discussion paper refers to several examples of policy approaches in place in FSB member jurisdictions to date and emerging industry practices. These include the systematic classification of distressed companies and standardized restructuring solutions, mobilization of private-sector resources by building private-public co-funds or by supporting banking sector code of conducts, and speeding up restructuring procedures that involve SMEs. FSB welcomes comments on the discussion paper and the questions set out below:
- How do creditors or investors assess the viability of a company in the current environment, given the possible transformation of business environment and consumption patterns following the COVID-19 crisis and considering a need to swiftly process a high number of (re-) assessments as government support measures phase out?
- What type of market-led mechanisms can help determine corporate viability? How could such market-led mechanisms for conducting due diligence be incentivized or supported?
- How can governments and financial authorities create favorable conditions to provide incentives for lenders and debtors to engage in corporate debt restructurings and to allow market exit of non-viable companies in a timely fashion?
- Is there likely to be a need to swiftly process a high number of restructurings as government support measures phase out?
- How can favorable conditions be created to incentivize investors to provide new financing to distressed but viable companies—for example through equity capital and particularly for SMEs? What other (new) forms of market-based financing may be used to address debt overhang issues—and how?
- How can public policy support private-sector financing for a smooth transition out of the debt distress post COVID? Which forms of public-private partnerships can be considered effective and under what conditions?
Related Links
Keywords: International, Banking, COVID-19, Credit Risk, SMEs, Resolution Plan, Debt Restructuring, Debt Overhang, Lending, Financial Stability, Basel, FSB
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
FSB Reports Assess NBFI Sector and Progress on LIBOR Transition
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.