Speed of resolution is paramount in these procedures so as to minimise the losses in asset value that would materialise if they were to drag on, especially in a context in which the economic policy response in the short term means that the liabilities of ailing businesses to general government will foreseeably be much higher than in previous crisis periods. The introduction of more appropriate procedures and incentives would also avoid suboptimal levels of business liquidations and destruction of the productive system that would weaken the longterm economic growth and recovery potential. The impact on the financial situation of households As in the case of firms, after the last global financial crisis, the financial situation of households improved significantly, and mortgage lending standards were far more prudent. However, consumer lending has posted high growth rates in recent years and groups of vulnerable households have continued to exist. In any case, this crisis is also having a significant impact on households. It has led to a reduction in the wage income of individuals who have lost their jobs or been furloughed, and in their wealth, given the adjustment to the valuation of most financial assets. Thus, social security registrations, after stripping out workers subject to furlough schemes, that is, the series which might be called “actual registrations”, is estimated to have shown a year-on-year decline of 22% at end-April, with much sharper reductions in some of the services segments hardest hit by the restrictions on movement associated with the state of alert, such as the hospitality sector.

A large-scale downgrading of this debt, to below investment-grade status, would entail considerable potential losses for the financial system of the European Union (EU) as a whole, a significant part of which would correspond to indirect losses attributable to the forced selling mentioned above. The role of rating agencies in this process is fundamental. When making their assessments, these institutions need to take into account the long-term outlook for the corporation concerned and avoid excessively pro-cyclical behaviour. Indeed, this time round, rating agencies appear to have been more cautious than in the global financial crisis and, to date, phenomena comparable to those seen in the past have not occurred. In any event, the results of this exercise serve to show the systemic importance of this vulnerability and the need to be prepared to provide a sufficient, internationally coordinated response, depending on how the pandemic develops at international level. The impact on general government  A system-wide scenario analysis of large-scale corporate bond downgrades, ESRB Technical Note, 23 July 2020. 10  15  During the current crisis, the activation of automatic fiscal stabilisers associated with lower tax receipts and increased cyclical expenditure (for instance, on unemployment benefit), along with the effect of the discretionary measures adopted by the authorities to mitigate the impact of the crisis, is leading to very significant increases in budget deficits and public debt in all countries. Initially, there were also tensions in European public debt markets, which led to a sharp rise in sovereign spreads.