Vulnerabilities Assessment
The Standing Committee on Assessment of Vulnerabilities (SCAV) is the FSB’s main mechanism for identifying and assessing risks and vulnerabilities in the financial system. The Committee focuses on macro-financial related vulnerabilities and risks arising from structural weaknesses in the financial system (such as misaligned incentives, amplification mechanisms or other forms of potential market stress). The SCAV draws extensively on the analytical and monitoring input of its members, including international financial institutions (IMF, BIS, OECD, World Bank) as well as securities regulators through IOSCO. The work of the SCAV focuses on the potential for international spill-overs across financial systems, which are difficult to cover in a domestic or regional context. The committee discusses and debates the key risks to the financial system and assesses them in terms of their materiality. Where policy actions are deemed to be required to address vulnerabilities, the SCAV draws attention to them to the relevant forums, other FSB standing committees, and standard-setting bodies as appropriate. Within the FSB, the SCAV reports its findings to the Plenary. Updates on these assessments are provided in the press releases issued by the Plenary following its in person meetings.
The SCAV’s work is supported by an Analytical Group on Vulnerabilities (AGV), a technical standing sub-committee which provides an analytical forum to discuss new and evolving risks to the financial system. The SCAV also conducts early warning exercises (EWE) jointly with the IMF, which consider less likely, more disruptive forward-looking risk scenarios.
In September 2021, the FSB published a new financial stability surveillance framework to identify and assess global financial system vulnerabilities. The framework aims to enable comprehensive and forward-looking assessments of global vulnerabilities. In doing this, the framework has four key aims to:
- increase the effectiveness of the FSB’s vulnerabilities discussions;
- improve the timeliness with which the framework identifies challenges to global financial stability;
- build on the comparative advantages of the FSB’s global perspective on financial stability issues; and
- contribute to the international policy dialogue.
The conceptual part of the framework is built around three pillars: (1) key principles; (2) a common terminology for vulnerabilities assessments and related discussions; and (3) a common taxonomy of vulnerabilities.
The purpose of the new framework is to increase the effectiveness of discussions amongst the FSB about vulnerabilities and improve the timeliness with which these discussions identify challenges to global financial stability. Once identified, material global net vulnerabilities will be subject to more intensive monitoring, analysis and, as appropriate, policy dialogue among FSB committees.
The FSB will regularly communicate its view on vulnerabilities through its Annual Reports.
