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.