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FSB Publishes Report on Interaction Between USD Funding and External Vulnerabilities in EMEs

On April 26, 2022, the Financial Stability Board released a report, US Dollar Funding and Emerging Market Economy Vulnerabilities (EMEs), outlining its findings of work in collaboration with the IMF on the interaction between US dollar funding and external vulnerabilities in emerging market economies. The collaboration with the IMF is part of the FSB’s work programme on non-bank financial intermediation, intended to enhance the resilience of non-bank financial intermediation (NBFI).

The report discusses EME vulnerabilities stemming from foreign currency borrowing, and necessary policy measures to address those vulnerabilities supported by analysis of EME capital flows during March 2020, with an emphasis on the non-bank investor roles. These measures include a concentration on the “build-up of foreign exchange mismatches"; enhancing crisis management tools; and addressing data gaps to "facilitate risk monitoring and the timely adoption of policies.” Generally, the report highlights EME vulnerabilities derived from external funding and non-bank financing, while illuminating the policy work that both the FSB and the IMF must do in their respective countries and internationally to increase EMEs resilience to “future shocks”.

More information on the report and EME vulnerabilities is available here and here.

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Financial Stability Board

FSB Chair Drafts Letter to G20 Highlighting Financial Effects of Russian Invasion of Ukraine

On April 20, 2022, the Financial Stability Board (FSB) published a letter from its Chair, Klass Knot, to the G20 Finance Ministers and Central Bank Governors in preparation for a meeting that took place on the same day. The letter outlined the status of global financial stability as well as the FSB’s plans to address emerging vulnerabilities. The letter further discusses the effects of Russia’s invasion of Ukraine on the global financial market including large price fluctuations and “concerns about the growth and potential use of crypto-assets”; however, these effects are far exceeded by the impact of the COVID-19 pandemic. Still, the Russian invasion is concerning as it is triggering inflation, which could promote restrictive financing; additionally, growing vulnerabilities may begin to present themselves in a material way, for example, high debt levels within the non-financial sector, and stretched valuations.

Issues of particular concern include linkages between commodity markets and the financial system; “financial system leverage and possible amplifiers in the event of market stress... and cyber risks”; heightened geopolitical tensions and rising energy and food prices within many emerging markets and developing economies are tacked on to already existing economic stressors from the pandemic; and “reduced policy space and tightening global financial conditions”. The FSB outlined actions items that include work on regulation and supervision of unbacked crypto-assets and stablecoins; increased monitoring of emerging vulnerabilities and market developments; continued work on G20 initiatives such as COVID-19 exit strategies and remedies; an upcoming report on US dollar funding and EME vulnerabilities related to external financing; and ongoing policy work related to financial risks from climate change.

More information on the FSB’s letter to the G20 is available here.

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Financial Stability Board, G20

Financial Stability Board Publishes Work Programme for 2022

On March 31, 2022, the Financial Stability Board (FSB) published the FSB Work Programme for 2022, which outlines priorities, new initiatives, continuing items or those reaching completion, regular monitoring and reporting, and key deliverables to the G20 Indonesian Presidency. Some of the FSB’s priorities and initiatives include:

  • Supporting international cooperation and coordination on current financial stability issues. This includes reinforced monitoring using the new surveillance framework, in light of the Russia-Ukraine conflict and its economic impacts. Further, the FSB will follow-up “on the lessons learnt from COVID-19 for financial stability report, and a report on exit strategies and effective practices for addressing the effects of COVID-19 scarring in the financial sector.”
  • Enhancing the resilience of non-bank financial intermediation (NBFI). 
  • Enhancing cross-border payments. The FSB will implement actions under its roadmap to enhance cross-border payments; and will deliver a progress report to the G20, along with “the development of key performance indicators to monitor progress towards the quantitative targets for the roadmap.”
  • Harnessing the benefits of digital innovation while containing its risks.  The FSB will focus on crypto-assets, such as decentralised finance (DeFi); and will continue to concentrate on enhancing operational and cyber resilience.
  • Addressing financial risks from climate change. “The FSB will continue to coordinate international work through its roadmap for addressing climate-related financial risks. The FSB’s own initiatives under the roadmap will focus on building and strengthening the analytical basis for monitoring climate-related risks to financial stability; identifying regulatory and supervisory approaches to address climate-related financial risks; and taking stock of progress in the implementation of the roadmap.”

More information on the FSB’s 2022 work programme is available here.

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Financial Stability Board

FSB Releases Report on FinTech’s Impact During the COVID-19 Pandemic

On March 21, 2022, the Financial Stability Board (FSB) released a report entitled, FinTech and Market Structure in the COVID-19 Pandemic: Implications for financial stability. The key takeaway of the report credited the COVID-19 pandemic for the acceleration of digitization of retail financial services. The report also discussed individual engagement with “innovative financial service providers and traditional financial incumbents”; the expansion of BigTechs and larger FinTechs into financial services and the data gaps they present; and whether the benefits of digital acceleration during the pandemic will become structural or will “revert back” to pre-pandemic levels as the current conditions go back to normal.

While the FSB commented that the arrival of BigTech and FinTech firms in the market could result in the improvement of cost efficiencies and broaden financial inclusion benefits for underserved groups, some concern was expressed over the risk that BigTech and FinTech firms may achieve market dominance. The report further laid out steps authorities have made during the pandemic to establish policy actions related to financial stability, competition, data privacy, and governance issues. It also stressed “the importance of cooperation between regulatory and supervisory authorities, including those charged with overseeing the bank and non-bank sectors, and where relevant, with competition and data protection authorities.”

More information on the FSB’s report is available here.

See also, BIS Releases Commentary Crediting Covid-19 for the Acceleration of Digitalization of Payments.

 

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Financial Stability Board

FSB Chair Publishes Letter to the G20 Regarding 2022 Deliverables

In advance of a meeting set for February 17 through 18, 2022, the Financial Stability Board (FSB) published a letter from their chair, Klass Knot, to the G20 Finance Ministers and Central Bank Governors. The letter details the work the FSB is doing this year to promote sustainable growth and global financial resilience in response to continuing COVID-19 issues such as uneven recovery across regions, inflation and record-high global debt levels. The FSB credits “determined” policy response and G20 post-2008 crisis reforms for current recovery successes which include bank and market infrastructure resilience.

These successes do not come without their challenges as the financial market is still dealing with COVID-19 fallout and trying to acclimate to what a post-pandemic market may reveal, including its effect on interest rates and asset prices, and vulnerabilities created by digital innovation. The FSB letter laid out the policy work planned for 2022 in response to efforts necessary for the market to transition to post-pandemic life, which include:

  • “Supporting financial market adjustment to a post-COVID world including work on policy considerations to support a more even, sustainable and inclusive global recovery, and on effective financial sector practices for national authorities to consider for addressing the effects of COVID-19 scarring.
  • Reinforcing financial system resilience in light of the COVID experience focusing on the FSB’s work to strengthen resilience in the non-bank financial intermediation (NBFI) sector through its NBFI work programme, including policy proposals to address systemic risk in NBFI.
  • Harnessing the benefits of digitalisation while containing its risks including implementing the G20 Cross-Border Payments Roadmap and its associated quantitative targets; work to address the financial risks posed by crypto-assets; and developing best practices for regulatory reporting of cyber incidents.
  • Addressing financial risks from climate change. Work here will focus on progressing the FSB’s roadmap for addressing climate-related financial risks.”

More information on FSB letter to the G20 and Central Bank Governors is available here.

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Financial Stability Board, G20

Financial Stability Board Leery of Emerging Risks from Crypto-Assets

In a newly released report, Assessment of Risks to Financial Stability from Crypto-assets, the Financial Stability Board (FSB) warns that crypto-assets could be a threat to global stability. The FSB argues that characteristics such as scale, structural vulnerabilities and interconnectedness with the “traditional’ financial system are considerable factors which may lead to financial instability on a global scale. The report further details developments and related vulnerabilities within unbacked crypto-assets, (i.e. Bitcoin); stablecoins; and decentralized finance (DeFi) in addition to other crypto-asset trading platforms, calling for “timely and pre-emptive evaluation of possible policy responses.”

While instability may not be imminent, according to the FSB, the crypto-asset market is growing exponentially, and could quickly become an issue. The FSB points out that in 2021, the market grew 3.5 times in capital to $2.6 trillion, which is fraction of the global assets within the financial system but still represents a rapid rate of growth. The report highlights Decentralized Finance (Defi) as an emerging sector that is quickly making an impact, stating that, “Some of these platforms operate outside of a jurisdiction’s regulatory perimeter or are not in compliance with applicable laws and regulations. This presents the potential for concentration of risks, and underscores the lack of transparency on their activities.”

More information on the FSB’s report can be found here and here.

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Financial Stability Board

IMF and World Bank Release Draft Framework for ML/TF Risk Assessment of a Remittance Corridor

The International Monetary Fund (IMF) and World Bank released a Draft Framework for Money Laundering and Terrorist Financing Risk Assessment of a Remittance Corridor, consisting of methodologies with the potential of identifying these corridors as “safe remittance corridors”, which are not intended define an absence of risk but a lower risk level. The goal of the framework is to simplify AML/CFT measures in lower risk remittance transactions For example, If the corridor risk assessment identifies an overall lower level of ML/TF risk, it can be treated as a safe remittance corridor and receive less stringent regulation such as simplified customer due diligence (CDD).

The draft framework serves as “a contribution to the FSB’s Roadmap for Enhancing Cross-Border Payments that was endorsed by G20 Leaders in 2020 and that aims to achieve faster, cheaper, more transparent, and more inclusive cross-border payment services.” The framework also addresses global correspondents’ tendency to terminate and restrict certain entities, as well as the use of de-risking to avoid instead of manage ML/TF. Credit unions have been increasingly subject to this treatment and World Council has consistently advocated for regulators to address the issue of de-risking. In response to the IMF-World Bank draft framework, the Financial Stability Board stated that, “The identification of safe remittance corridors based on a robust corridor risk assessment CRA can reconcile two important policy goals in relation to remittances: first, to support poverty alleviation and economic growth in low-income countries by safeguarding cost-effective transfer mechanisms; and second, to minimize the risk that these mechanisms will be used for criminal or terrorist purposes.”

More information on the IMF-World Bank draft framework is available here.

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Financial Stability Board

US Federal Reserve Board Governor Appointed Chair of the FSB’s Standing Committee on Assessment of Vulnerabilities

On December 10, 2021, it was announced that Lael Brainard, the current Governor of the US Federal Reserve Board, was appointed for a two-year term as Chair of the Financial Stability Board’s (FSB) Standing Committee on Assessment of Vulnerabilities (SCAV). Brainard succeeds Klaas Knot, President of De Nederlandsche Bank, who served as Chair of SCAV since September 2016. The SCAV “monitors and assesses vulnerabilities in the global financial system and proposes to the FSB Plenary actions needed to address them.” These assessments spotlight macro-financial vulnerabilities stemming from structural flaws within the financial system.

More information on the SCAV appointment is available here.

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Financial Stability Board

FSB Says Market Participants Should Act Urgently to Prepare for End of Year LIBOR Cessation

In the FSB Statement to Support Preparations for LIBOR Cessation, the Financial Stability Board (FSB) strongly urged market participants to finalize any final steps outlined in the FSB’s Global Transition Roadmap, as most LIBOR panels will end at the end of 2021. While some key USD settings will continue into June 2023 to allow legacy contracts to mature, the FSB states that, “Continued reliance of global financial markets on LIBOR poses risks to global financial stability.” The FSB has ensured participants that in the upcoming months they will continue to monitor the final steps of the LIBOR transition. 

Key details covered in the statement include:

  • “Significant progress has been made in transitioning to Risk-Free Rates (RFRs), but market participants still need to finalise preparations to cease new use of LIBOR by end-2021.
  • Transition should be primarily to overnight RFRs, the most robust benchmarks available, to avoid reintroducing the weaknesses of LIBOR.
  • Active transition of legacy contracts remains the best way for market participants to have control and certainty over their existing arrangements.”

More information on the FSB’s Statement to Support Preparations for LIBOR Cessation is available here.

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Financial Stability Board

Financial Stability Board Chairs Issues His Final Letter to the G20

Yesterday the FSB published a final letter from FSB Chair, Randall K. Quarles before his three-year terms ends on December 1, 2021, along with a report on lessons learnt from COVID-19 from a financial stability perspective. The letter discusses the significance of the Rome Summit occurring during global economic recovery from the COVID-19 pandemic, as well as structural challenges to the global financial system, which include rapid technological innovations (i.e. crypto-assests), and the impact on climate change on financial stability.

Key lessons from final report on Lessons learnt from the COVID-19 pandemic from a financial stability perspective, include:

  • Market and institutional resilience. The functioning of bank capital and liquidity buffers may warrant further attention; the Basel Committee on Banking Supervision will update its overall analysis on the lessons from the pandemic. The March 2020 market turmoil underscored the need to strengthen resilience in the non-bank financial intermediation sector; the FSB is taking forward a comprehensive work programme. Some concerns about possible excessive procyclicality in the financial system remain; standard-setters will take forward work in procyclicality in margining practices and the Basel Committee will further monitor expected credit loss provisioning.
  • Operational resilience. COVID-19 has highlighted the importance of effective operational risk management being in place before a shock hits. The FSB will develop best practices for the types of information authorities may require related to cyber incidents to promote financial stability. The FSB is also launching further work related to third-party risk management and outsourcing, and will develop expectations for financial authorities’ use in oversight of financial institutions’ reliance on critical service providers.
  • Crisis preparedness. The pandemic highlighted the importance of effective cross-border cooperation, coordination and risk-sharing. The FSB will identify a set of good practices and emerging practices of crisis management groups to enhance preparedness for, and facilitate the management and resolution of, a cross-border financial crisis affecting a global systemically important bank (G-SIB).”

More information on the FSB Chair’s letter to the G20 and the final report can be found here.

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Financial Stability Board

Financial Stability Board Issues Letter to G20 Ahead of October 13 Meeting

Ahead of their October 13, 2021, meeting, the Financial Stability Board (FSB) Chair, Randall K. Quarles, issued a letter to the G20 Finance Ministers and Central Bank Governors in relation to the two reports the FSB has already provided to the G20 regarding the development of a more resilient NBFI sector, and addressing challenges in cross-border payments.

The FSB committed to a multi-year plan to enhance NBFI resilience after market turmoil in March 2020, to focus on, in collaboration with the International Organization of Securities Commission (IOSCO), vulnerabilities in money market funds (MMFs). The FSB also provided the G20 with a final report entitled “Policy Proposals Aimed to Enhance Money Market Fund Resilience”.

Further, as a follow up to the roadmap they previously submitted to the G20 on enhancing cross-border payments, the FSB plans to submit:

More information on the FSB’s letter to the G20 can be found here.

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Financial Stability Board, G20

FSB and IMF Publish Requested Report on G20 Data Gaps Initiative

As a follow up to the Financial Stability Board (FSB) and International Monetary Fund’s (IMF) report entitled, The Financial Crisis and Information Gaps (2009), that discussed information gaps and strengthening data collection, the entities published the Sixth Progress Report - Countdown to December 2021. The first report was phase one of the G20 Data Gaps Initiative (DG-1) where G20 Ministers and Governors requested the FSB and IMF examine information gaps and generate proposals to strengthen data collection processes. The Sixth Progress Report and phase two (DG-2) sets out to “to implement the regular collection and dissemination of reliable and timely statistics for policy use”, as well as provide new recommendations that outline policymaker priorities, including: (i) climate change; (ii) household distributional information; (iii) fintech and financial inclusion data; and (iv) access to private sources of data and administrative data, and data sharing.

The report consists of 20 different recommendations falling under the following headings:

  • Monitoring risk in the financial sector;
  • vulnerabilities, interconnections and spillovers; and
  • data sharing and communication of official statistics. 

More information and highlights of the Sixth Progress Report - Countdown to December 2021 can be found here.

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Financial Stability Board, G20

Financial Stability Board Establishes Financial Stability Surveillance Framework

The Financial Stability Board ( FSB), released their report, “FSB Financial Stability Surveillance Framework” to review vulnerabilities including global, cross-border, and cross-sectoral perspectives, and identify and address current and emerging risks to financial stability.

The framework includes four key principles:

  • “Focus on vulnerabilities that may have implications for global financial stability;
  • scan vulnerabilities systematically and with a forward-looking perspective, while preserving flexibility;
  • recognize differences among countries; and
  • leverage the comparative advantages of the FSB while avoiding duplication of work.”
                                                                        












More information on the FSB Financial Stability Surveillance Framework is available here.

 

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Financial Stability Board

Climate-Related Financial Risk Letter from FSB Chair to G20

In anticipation of a July 9th meeting, a letter from Financial Stability Board (FSB) Chair, Randal K. Quarles to G20 Finance Ministers and Central Bank Governors, was published highlighting remaining risks to financial stability associated with non-bank financial intermediation and money market funds, climate change, and transition away from LIBOR as prominent issues. Notably, the FSB Chair underlined the need for coordinated efforts to address financial risks related to climate change and requested endorsement from the G20 of a roadmap tasked with undertaking climate-related financial risks. “The roadmap outlines the work underway and still to be done by standard-setting bodies and other international organizations over a multi-year period in four key policy areas: disclosures, data, vulnerabilities analysis, and regulatory and supervisory approaches.”

On July 7, 2021, the FSB published three climate-related reports:

More information is available on the FSB Chair’s letter to the G20 and Central Bank Governors here.

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Financial Stability Board

Financial Stability Board Emphasizes Urgency to Transition from LIBOR

Today the Financial Stability Board (FSB) published a progress report to the G20 on LIBOR transition and remaining issues, highlighting the FSB’s priority to transition away from LIBOR, and underscoring that a majority of LIBOR settings will cease in less than half a year. “The FSB encourages authorities to set globally consistent expectations and milestones that firms will rapidly cease the new use of LIBOR, regardless of where those trades are booked or in which currency they are denominated. Market participants are urged to cease new use of LIBOR in all currencies as soon as practicable, respecting national working group timelines and supervisory guidance where applicable, and in any case no later than the end of 2021.”

FSB further urged market participants to complete steps laid out in the Global Transition Roadmap, and for supervisory authorities to increase efforts to communicate the scope and urgency of LIBOR transitions to all clients. The FSB has committed themselves to helping with the transition of those emerging markets and developing economies that are lagging behind.

More information on the FSB’s report to the G20 and general efforts to transition away from LIBOR are available here.  

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Financial Stability Board

Financial Stability Board Supports End of LIBOR by End of 2021

LIBOR is coming to an end. While many USD settings will continue until the end of 2023, the majority of LIBOR panel of global banks will cease by the end of 2021. In March, the ICE Benchmark Administration (IBA) and the Financial Conduct Authority (FCA) made confirmation of the dates that all LIBOR settings will discontinue. In response, the Financial Stability Board (FSB) has published several reports and publications supporting a “smooth transition” away from LIBOR by the end of 2021.

The FSB made recommendations for financial, non-financial sector firms, and authorities to consider by publishing the following statements and reports:

  • “An updated global transition roadmap that, drawing on national working group recommendations, summarises the high-level steps firms will need to take now and over the course of 2021 to complete their transition.
  • A paper reviewing overnight risk-free rates and term rates, building on the concept that the tools necessary to complete the transition are currently available. The FSB cautions market participants against waiting for the development of additional tools, in particular forward-looking term risk-free rates.
  • A statement on the use of the ISDA spread adjustments in cash products, to support transition particularly in loan markets, which remains an area of concern with much new lending still linked to LIBOR.
  • statement encouraging authorities to set globally consistent expectations that regulated entities should cease the new use of LIBOR in line with the relevant timelines for that currency, regardless of where those trades are booked.”

Additional information on the FSBs recommendations for LIBOR transition is available here.

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Financial Stability Board

Financial Stability Board Requests Response to Public Consultation on Cross-Border Payments

On May 31, 2021, the Financial Stability Board (FSB) announced they were seeking response to their public consultation, Targets for Addressing the Four Challenges of Cross-Border Payments. The global targets proposed are intended to improve cost, speed, transparency and access to cross-border payments via the FSB’s Roadmap for Enhancing Cross-border Payments. “The quantitative targets proposed are a foundational step in the G20 Roadmap for Enhancing Cross-border Payments, which was endorsed by G20 Leaders in November 2020."

The FSB expects individual targets to be met by end of 2027, however, remittance cost targets are set for 2030 by the United Nations Sustainable Development Group Goal (UN SDG), which is endorsed by the G20.

The FSB anticipates that a final report consisting of final targets will be completed by October of this year. By this date the FSB states they will have developed an “implementation approach for monitoring the targets that will set out:

  1. how targets will be measured and data sources and data gaps to be filled;
  2. how progress towards meeting the targets will be monitored; and
  3. the frequency of data collection and publication.”

More information on the FSB public consultation on cross-border payments can be found here and here.

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Financial Stability Board

Financial Stability Board Addresses G20 Regarding Covid-19, Too-Big-To-Fail and Climate Change

In anticipation of the April 7th meeting with the G20, on April 6, 2021, the Financial Stability Board (FSB) published a letter from Chair, Randall K. Charles entitled, To G20 Finance Ministers and Central Bank Governors. The letter discusses Covid-19 support ramifications, FSB's support of the progress made on Too-Big-To-Fail (TBTF) reforms for banks, and emphasizes the importance of focusing on climate change issues as they relate to financial services.

The letter includes mention of the report the FSB and delivered to the G20 on April 6, entitled, COVID-19 support measures Extending, amending and ending. Notably, the report states that “withdrawal of support measures before the macroeconomic outlook has stabilised could be associated with significant immediate risks to financial stability.” The FSB, however, maintains that support measures could exist past the point of being helpful and that financial stability risks will start to grow; but admittedly, the FSB acknowledges that “most authorities currently believe that the costs of premature withdrawal of support could be more significant than maintaining support for too long”, and that flexibility and a “state-contingent approach” could minimize risks.

The letter goes on to endorse TBTF reforms but highlights vulnerabilities within non-bank financial intermediation or NBFI (insurance firms, venture capitalists, currency exchanges, some microloan organizations, and pawn shops); and lastly, discusses sustainable finance and climate change issues. FSB deliverables to the G20 (due in July) include two reports “on ways to promote consistent, high-quality climate disclosures in line with the recommendations of the Task Force for Climate-related Financial Disclosures; and on the data necessary for the assessment of financial stability risks and related data gaps.” The FSB will also present a roadmap to the G20 on climate-related financial risk, and coordinate with the G20 in developing their sustainable finance roadmap.

More information on the FSB’s letter, To G20 Finance Ministers and Central Bank Govenors; and report on COVID-19 Support Measures Extending, Amending an Ending, can be viewed here.

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Financial Stability Board

Financial Stability Board Publishes Evaluation of Too Big to Fail Reforms for Systemically Important Banks

On March 31, 2021, the Financial Stability Board (FSB) published its final report entitled, Evaluation of the Effects of Too-Big-To-Fail Reforms, focusing their attention mainly on systemically important banks (SIBs). The objective of the evaluation is to examine “the extent to which the reforms have reduced the systemic and moral hazard risks associated with SIBs, as well as their broader effects on the financial system.”

While the report included mention of non-bank institutions, it largely focused on SIB reforms and how non-bank institutions function in proximity to them, stating that: “As SIBs face more stringent requirements, other banks and non-bank financial institutions would pick up market share and improve profitability relative to SIBs.”

The report goes on to articulate that “other intermediaries” including both banks and non-banks have contributed more than global systemically important banks to growth in the ratio of credit to GDP and hypothesized that “additional impact of the TBTF reforms on G-SIBs could have left space for growth by other intermediaries”; and that non-bank financial intermediation (NBFI) has substantial growth in total assets after the TBTF reforms. However, credit unions typically remain stable during economic hardship with no bearing on whether SIBs perform satisfactorily. The report waivers on its opinion of non-bank institutions and hypothesizes that more diversity within the financial system could support financial stability, but then conjectures that “a shift of credit provision activities to non-bank financial intermediaries could raise financial stability concerns.” Ultimately, the FSB concedes that the implications of non-bank institutions have not been fully evaluated and that they will work to address financial stability risks. World Council agrees and urges the FSB to study the impact of the “Too-Big-To-Fail” reforms on smaller financial institutions.  

FSB voiced the need to improve the resiliency of NBFI, asserting that “the events of March 2020 suggested that some parts of the NBFI system acted as propagators rather than mitigants of the stress.”  What the FSB should consider is that smaller, not-for-profit cooperative institutions such as credit unions, are more stable during times of economic hardship.  This is due to their not-for-profit status and ability to provide necessary services to the underserved community typically forgotten or ignored by SIBs. Credit unions provide a direct benefit to the financial market and should be given some deference as to the needs of these institutions by providing proportional reforms so that they can continue to thrive and contribute to market buoyancy.

More information on the final report can be viewed here and here.

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Financial Stability Board

Financial Stability Board Publishes 2021 Key Priorities

In anticipation of the FSB’s virtual meeting with the G20 Finance Ministers and Central Bank Governors on February 25, 2021, Chair, Randall K. Quarles drafted a letter outlining the FSB’s key priorities for 2021, which “address vulnerabilities directly related to COVID-19 and to increase resilience of non-bank financial intermediation (NBFI). It also aims to support strong, sustainable, and balanced growth in a post-COVID world.”

The FSB’s key priorities include:

  • Addressing COVID-19 related vulnerabilities. Including: Assessment of initial lessons learned from the COVID Event for financial stability; an April report on factors needed for an orderly unwinding of support measures; and publishing the final version of its evaluation of too-big-to-fail reforms for banks in April.
  • Increasing the resilience of NBFI. Includes: Examining and addressing specific risk factors that contributed to amplification of the March 2020 market turmoil; enhancing understanding of systemic risks in NBFI; investigating policies to address these risks; and delivering policy proposals to enhance the resilience of money market funds in July for public consultation.
  • Improving efficiency and access in cross-border payments. Including: October progress report on the implementation of the FSB roadmap to enhance cross-border payments; and an update on regulatory and supervisory approaches to global ‘stablecoins’.
  • Bettering our understanding of climate-related risks. Including: Expansion on report on the financial stability implications of climate change; coordinating with other SSBs to promote globally comparable, high-quality, and auditable standards of disclosure; and review of regulatory and supervisory approaches to address climate-related risks at financial institutions.
  • Addressing other financial stability topics of ongoing importance. Includes: Enhancing central counterparty resilience, recovery, and resolvability; exploring areas to harmonize cyber incident reporting; and ensuring a smooth transition away from LIBOR by end-2021 to more robust benchmarks.

More information on the FSB’s 2021 work program and key priorities can be found here.

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Financial Stability Board

FSB Sets Out Progress on Interest Rate Benchmark Reform

The Financial Stability Board (FSB) published a progress report on implementation of reforms to major interest rate benchmarks.

The roadmap sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth LIBOR transition by end-2021.

With only one year left, all market participants – both financial and non-financial firms across the globe – must now ensure they follow the necessary steps to avoid disruption to the performance of their contracts. For transition to occur on time, market participants will need to cease use of LIBOR as a benchmark in all new activity across global markets as soon as possible and this needs to be a key priority for the months ahead.

The report outlines various efforts on the transition.  The report can be viewed here.

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Financial Stability Board

FSB Examines Financial Stability Implications of Climate Change

The Financial Stability Board (FSB) published a report that examines the potential implications of climate change for financial stability. The report analyses how climate-related risks might be transmitted across, and might be amplified by, the financial system, including across borders. It also sets out next steps for the FSB’s work in this area.

The report discusses various risks and notes that financial institutions can take various actions – and are taking actions – to reduce or manage their exposure to climate-related risks. However, the efficacy of such actions taken by financial firms may be hampered by a lack of data with which to assess clients’ exposures to climate-related risks, or the magnitude of climate-related effects. Robust risk management might be supported by initiatives to enhance information with which to assess climate-related risk.

A copy of the report can be viewed here.

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Financial Stability Board

FSB Letter to G20 Notes Continued Financial Uncertainty

A letter from the Financial Stability Board (FSB) Chair, Randal K. Quarles, to G20 Leaders ahead of their November Summit, notes that while financial conditions have continued to ease the global economic outlook remains uncertain and financial stability risks elevated.  In his letter, the FSB outlines three responses to financial stability vulnerabilities resulting from COVID-19 as follows:  

  • Coming to a shared diagnosis – the letter notes that the market turmoil in March manifested itself differently in countries around the world. Emerging market economies experienced severe strains in offshore US dollar funding markets; whereas some advanced economies experienced significant outflows from certain types of investments. The FSB’s holistic review assesses the initial stages of the COVID-19 Event as having exposed a number of common strengths and vulnerabilities across the global financial system.
  • The need for continued vigilance and policy support – the challenges posed by the COVID Event have by no means dissipated yet. Persistent economic uncertainty and still elevated financial stability risks call for continued vigilance. The FSB continues to carefully monitor for signs of emerging vulnerabilities. The protracted nature of the COVID Event requires continued efforts to support financial resilience and ensure a sustained flow of financing to the real economy.
  • Enhancing financial sector resilience going forward – the COVID-19 Event has provided an opportunity to further assess financial stability risks and to refine measures put in place after the 2008 global financial crisis, where appropriate. These lessons can help strengthen financial sector resilience to better prepare for future shocks.

A copy of the letter and other responses to the COVID-19 crisis can be viewed here.

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Financial Stability Board

FSB Delivers Roadmap on Cross-Border Payments

The Financial Stability Board (FSB) published a roadmap to enhance cross-border payments. The roadmap has been delivered to G20 Finance Ministers and Central Bank Governors for their consideration. .

The G20 has made enhancing cross-border payments a priority during the Saudi Arabian Presidency. Faster, cheaper, more transparent and more inclusive cross-border payment services, including remittances, while maintaining their safety and security, would have widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.

Te report sets out actions and timelines in the following five focus areas:

  • Committing to a joint public and private sector vision to enhance cross-border payments
  • Coordinating on regulatory, supervisory and oversight frameworks
  • Improving existing payment infrastructures and arrangements to support the requirements of the cross-border payments market
  • Increasing data quality and straight-through processing by enhancing data and market practices
  • Exploring the potential role of new payment infrastructures and arrangements.
A copy of the roadmap can be viewed here.
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Financial Stability Board

FSB Publishes LIBOR Global Transition Roadmap

The Financial Stability Board (FSB) today published a global transition roadmap for LIBOR. The roadmap sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth LIBOR transition by end-2021.

In July the FSB reaffirmed that financial and non-financial sector firms across all jurisdictions should continue their efforts to make wider use of risk-free rates in order to reduce reliance on IBORs where appropriate and in particular to remove remaining dependencies on LIBOR by the end of 2021.

Among the steps in the Roadmap:

  • Firms should have already, identified and assessed all existing LIBOR exposures and agreed on a project plan to transition in advance of end-2021.
  • By the end of 2020, firms should be in a position to offer non-LIBOR linked loans to their customers.
  • By mid-2021, firms should have established formalised plans to amend legacy contracts where this can be done and have implemented the necessary system and process changes to enable transition to robust alternative rates.
  • By end-2021, firms should be prepared for LIBOR to cease
A copy of the press release can be viewed here.
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Financial Stability Board