What’s past is prologue: building resilience in nonbank financial intermediation

1 October 2025

Opening remarks for the Program on International Financial Systems (PIFS) and Financial Stability Board (FSB) Seminar on Leverage in the NBFI Sector.

The views expressed in these remarks are those of the speaker in his role as Secretary General of the FSB and do not necessarily reflect those of the FSB or its members.

Introduction

Hello everyone, 

Thank you for joining this virtual seminar. Let me begin by expressing my gratitude to the Program on International Financial Systems for organising this event and for assembling such an impressive lineup of speakers. The breadth of expertise in today’s seminar is a testament to the importance of nonbank financial intermediation (NBFI) in the global financial system. 

Events like these give us the opportunity to step back from our day-to-day work and to engage in a deeper dialogue about the challenges and opportunities we face. They allow us to share insights, exchange ideas, and reflect on the progress we have made while also identifying the work that still lies ahead. 

The topic we are here to discuss, leverage in the nonbank financial sector, is one of the most pressing issues in financial stability today. It is a subject that has been central to the Financial Stability Board’s agenda in recent years, and it will continue to demand our attention as the financial system evolves. 

What’s in a name?

Before we delve into the substance of today’s discussions, I want to take a moment to reflect on the term “nonbank financial intermediation.” For years, we referred to this sector as “shadow banking,” a term that evoked opacity and risks. While it served its purpose at the time, its negative connotations diverted attention from the fundamental role that nonbanks play in the global financial system. Today, we use the term “nonbank financial intermediation” to better capture the wide range of entities and activities that make up this critical part of the financial system. 

But even the term “NBFI” has its limitations. Using a single term may suggest that NBFI is a monolithic entity, when in reality, the sector is anything but. It encompasses everything from money market funds (MMFs) and open-ended funds (OEFs), to hedge funds, pension funds, insurance companies, and more. These entities perform different functions, operate under different business models, and therefore the vulnerabilities and the risks they may present to the financial system are equally varied. 

While the term is a useful shorthand, at the FSB, most of our work takes a more targeted approach, focusing on specific entities and activities that fall under the umbrella term NBFI but where vulnerabilities are most pronounced and where risks to financial stability are most significant. The shift to this more targeted approach reflects the maturity of our collective understanding of NBFI and the need for a more nuanced approach to addressing its challenges. 

By dissecting NBFI into its constituent parts and looking at the behaviour of those parts during stress, we can better identify potential threats to financial stability and develop policies that are appropriately designed to the specific vulnerabilities and risks involved.

Why we care about NBFI

Before talking about the FSB’s work in this area, let me spend a few minutes highlighting why the FSB devotes so much time and effort to studying NBFI. The answer is simple: because it matters. 

  • NBFI is big

The nonbank sector has grown significantly since the global financial crisis. As of 2023, it accounted for nearly half of global financial assets, amounting to approximately $240 trillion. This growth has been driven by a range of factors, including regulatory changes, the prolonged low-interest-rate environment, and technological innovation.  Our flagship NBFI publication, the Global Monitoring Report on Non-Bank Financial Intermediation is a rich source of information on trends and developments in the nonbank sector.

  • NBFI is everywhere

NBFI is deeply embedded in the global financial system and intertwined with banks and central counterparties. It provides credit to households and businesses, liquidity to markets, and investment opportunities to savers. It is a vital source of financing for the real economy and plays a critical role in supporting economic growth.

  • NBFI is increasingly critical to the functioning of the financial system 

The importance of NBFI extends beyond its size and reach. The sector is integral to the functioning of the financial system, given the increasingly large role nonbank institutions play in core financial markets and the broader economy. But with this importance comes responsibility. When vulnerabilities in the nonbank sector go unaddressed, they can amplify shocks and destabilise the financial system. 

Recent history provides several stark examples of how vulnerabilities in NBFI can lead to or amplify market turmoil. Let me take you through a few recent examples: 

Runs on Money Market Funds (March 2020):  At the onset of the COVID-19 pandemic, MMFs faced significant liquidity pressures as investors sought to redeem their holdings amid heightened uncertainty. These redemptions created a feedback loop, amplifying stress in short-term funding markets and necessitating central bank intervention. 

Archegos Capital Management (March 2021): The collapse of Archegos highlighted the risks associated with leverage and concentrated exposures within the nonbank sector. The event led to significant losses for counterparties and raised questions about the adequacy of risk management practices of prime brokers, as well as that of bilateral counterparty disclosure between leveraged entities and their leverage providers. 

Liability-Driven Investment (LDI) strategies in the UK (September 2022): In September 2022, a sharp rise in gilt yields exposed vulnerabilities in the investment strategies of some UK pension funds, leading to severe liquidity challenges. The resulting market turmoil required intervention by the Bank of England to restore market stability. 

Asset swap spread trade unwinding in the US (April 2025): In April of this year, the unwinding of certain relative value trades by leveraged nonbank investors added to the upward pressure on US Treasury bond yields, highlighting the need to closely monitor leveraged trading strategies, especially when they are crowded or concentrated, as well as the broader issue of interconnectedness. 

Each of these episodes was different in nature, but they shared a common thread of vulnerabilities in the nonbank sector that amplified stress and propagated shocks across the financial system. 

Because of the fundamental importance of this sector, because it has grown, and because recent periods of stress have highlighted areas where the resilience of this sector can be strengthened, the FSB has put a lot of effort into work on NBFI. Let me highlight a few examples of the broad range of work the FSB is doing in this area, before I hone in on leverage, the main topic of today’s seminar. 

Money Market Funds (MMFs): 

The March 2020 market turmoil underscored the vulnerabilities of money market funds to sudden and disruptive redemptions. The scale and speed of the redemptions were unprecedented, and they highlighted the need for further reforms. 

In response, in 2021, the FSB issued policy recommendations to enhance the resilience of MMFs, focusing on measures to address liquidity mismatches and reduce the risk of runs. We have been closely monitoring the implementation of these reforms across jurisdictions and, while progress has been made, it has been uneven among jurisdictions so far. We are currently discussing plans to assess the effectiveness of MMF reforms.

Open-Ended Funds (OEFs):

Liquidity mismatches in open-ended funds remain a concern, particularly when investor redemption terms and conditions are not aligned with the liquidity of the underlying assets and when a first-mover advantage exists that can amplify investor redemption requests. 

In 2023, the FSB revised its policy recommendations to address these vulnerabilities, emphasising the importance of anti-dilution liquidity management tools and the need for fund managers to align redemption terms with the liquidity of their assets. We are working closely with IOSCO to operationalise these recommendations through guidance and good practices, and we will continue to monitor their implementation. 

Leverage in Sovereign Bond Markets:

Leveraged trading strategies in sovereign bond markets can amplify stress and propagate shocks across the financial system. This was evident, for instance, during the March 2020 turmoil, when leveraged investors unwound positions in response to margin calls, exacerbating dislocations in government bond markets. 

The FSB is currently assessing vulnerabilities in government bond-backed repo markets, examining market structures, recent stress episodes, participant roles, bank-nonbank interconnections, concentration areas, and cross-border spillover risks. The findings aim to enhance the monitoring of these vulnerabilities and to support efforts to address NBFI data challenges linked to leveraged trading in sovereign bond markets. I will come back to the issue of data later.

These three efforts reflect the broader shift in our approach to NBFI away from treating the sector as a monolith that I mentioned earlier. We are drilling down into the constituent parts to better understand the unique challenges this complex and diverse sector poses and to develop policies that are appropriately designed and calibrated to the specific risks involved. 

FSB Recommendations on NBFI Leverage

Finally, let me now turn to today’s subject. Recognising the risks posed by NBFI leverage, the FSB has developed a set of policy recommendations to enhance the monitoring of NBFI leverage and to address the financial stability risks that it creates.  We focused on two key areas:

  • First, risks that may arise in core financial markets. These markets are critical to the functioning of the financial system and the real economy; and
  • Second, risks that may arise through interlinkages between leveraged nonbanks and systemically important financial institutions that act as leverage providers.

Building on several steps already taken by authorities and the work done by the sectoral standard-setting bodies, our recommendations should be viewed as a package that urges authorities to: have a domestic framework in place to identify and monitor risks in an effective, frequent, timely and proportionate manner; and to select, design and calibrate policy measures that address the risks that they identify in a flexible, targeted and proportionate way.

Before going into more depth on the recommendations, let me stress a few aspects that are important to understand the framing of the policy package, which integrates the need to identify risks to financial stability with the tailoring of the policy response.

  • The recommendations are not a one-size-fits all solution.
  • The recommendations are addressed to FSB member authorities and focus on markets, entities, and activities where NBFI leverage can create financial stability risks.
  • Entities in scope are nonbanks that use either financial or synthetic leverage (including hedge funds, other leveraged investment funds, pension funds and insurance companies).
  • Recognising the heterogeneity in the sector and the varying nature of leverage in different jurisdictions, the recommendations provide authorities with flexibility to tailor their policy response to the circumstances prevailing in their jurisdiction. 

Turning to the recommendations themselves.

The first three recommendations relate to risk identification and monitoring. For example, we set out the need for authorities to address data challenges in their domestic risk identification and monitoring framework and to collaborate to reduce those challenges that may hinder effective cross-border risk identification and monitoring. We also stress the need to review and enhance public disclosure, as well as to increase transparency, particularly regarding concentration and crowdedness, thereby supporting market discipline.

The fourth and fifth recommendations focus on policy measures to address financial stability risks created by NBFI leverage in core financial markets, such as sovereign bond markets.  These measures include: activity-based measures, such as minimum haircuts and initial margin requirements in securities financing transactions backed by government securities; and stricter margin requirements in derivatives markets, particularly for transactions that are not centrally cleared. Promoting the use of central clearing is also a focus. The measures also include entity-based measures, such as imposing direct and indirect limits on the amount of leverage that certain entities can take. An example of this is the yield buffer requirement for British-pound-denominated LDI funds.

For both activity- and entity-based measures, the recommendations include potential measures to address concentration risks, which are particularly prominent in some cases. The objective of these two recommendations is to prompt authorities to consider specific measures – for example, large exposure limits – in case other policy measures do not appropriately mitigate the system-wide risks that large, concentrated exposure can generate.

The sixth and seventh recommendations cover counterparty credit risk management. They recommend that authorities ensure the timely and comprehensive implementation of the recently issued BCBS guidelines on counterparty credit risk for bank leverage providers. In addition, the recommendations ask that authorities review the adequacy of existing counterparty-disclosure practices between leveraged nonbanks and leverage providers and consider developing, possibly in partnership with the industry, mechanisms, standards, or guidelines to enhance the effectiveness of these disclosure practices. Such a public-private partnership could also explore the adoption of technology-based mechanisms that might enable leverage providers to manage risk and verify that counterparty exposures remain within agreed tolerances without compromising the confidentiality of their clients’ proprietary investment strategies or positioning.

The final recommendation asks authorities to engage proactively with their peers to facilitate a coordinated crisis and policy response. The recommendation recognises the important role that cross-border cooperation can play in enhancing the monitoring of risks that can propagate across borders and how we can foster more efficient and aligned policy responses to mitigate regulatory arbitrage and spillovers. Cross-border cooperation is also important to ensure that the framework we have built to enhance the resilience of NBFI is underpinned by effective implementation and robust foundations in terms of data and policy solutions.

Next steps

Nonbank financial intermediation is critical to the global financial system and the global economy. As I highlighted, there have been recent periods of turmoil where parts of that sector did not display the resilience that we would have desired, and the FSB and other standard setters have taken steps to enhance the resilience of this sector. While significant progress has been made, more work is needed to ensure the nonbank sector is resilient. We are joined by people much wiser than I, but before I hand over to them, let me leave you with some thoughts, with the help of Shakespeare, whose wisdom far exceeds my own and whose words often hold a mirror to the challenges and opportunities we face today. 

  • Be great in act as you have been in thought

With respect to leverage, in the near term, authorities are considering the recommendations and some of them are already taking concrete steps. The FSB is currently discussing plans to organise supervisory discussions on policy measures taken by jurisdictions to address risks created by leverage in NBFI.  This could be important to assist in coordinating supervisory issues that have cross-sector implications and advise on and monitor best practice in meeting regulatory standards with a view to ensure consistency, cooperation, and a level-playing field across jurisdictions. 

  • I will swear to study so, to know the thing I am forbid to know

Critically, we must continue to address data challenges. While we no longer use the term “shadow banking”, the negative connotations of that term hinted at the difficulty that authorities have in understanding the sector owing to the lack of data. The FSB’s recently established task force on nonbank data is working to identify and address gaps in data reporting, to enhance data quality and data use, and to promote data and information sharing among authorities. The test case we launched earlier this year focuses on leveraged trading strategies in sovereign bond markets.

  • Our doubts are traitors and make us lose the good we oft might win by fearing to attempt

Also important, we must implement agreed reforms and assess their effectiveness. For money market fund and open-ended fund reforms, this means beginning the process of evaluating their effectiveness. For more recent reforms, like the FSB recommendations on NBFI leverage, this means making best efforts to ensure consistent implementation by FSB members. 

  • I am as vigilant as a cat to steal cream

Finally, we must remain vigilant to emerging risks. The financial system is constantly evolving, and so too must our approach to safeguarding it. This requires ongoing collaboration among authorities, experts, and market participants, both domestically and internationally. We must adapt our surveillance of the sector as quickly as the sector itself evolves. 

I look forward to hearing the discussions.

Thank you. 

Enhancing supervision: challenges and opportunities for the EU

19 September 2025

Speech by Martin Moloney, Deputy Secretary General of the Financial Stability Board, at the Eurofi Financial Forum 2025 in Copenhagen

The views expressed in these remarks are those of the speaker in his role as FSB Deputy Secretary General and do not necessarily reflect those of the FSB or its members.

I’m told that the last public execution in this lovely city of Copenhagen occurred in the 1770s for a form of securities fraud. In an important sense, all forms of penalty imposed on an entity reflect the reality either that supervision has failed or that it hasn’t been tried. A key part of getting closer to ‘the system working well’ – and a part that, I suggest, is particularly relevant to the EU – is whether supervision and the structure of regulatory institutions is working well. In different parts of the world, pre-emptive supervision and post-fact enforcement play different roles and these are legitimate differences of approach. The European approach, entirely legitimately, places a predominant reliance on supervision; but the organisational structures are, as the IMF observed in its recent Financial Sector Assessment Program on Euro Area policies, complex. 

At its heart, supervision relies on two key ideas:

  • First, that human beings tend to comply more with rules when there is a chance that their compliance will be checked; but
  • Secondly, and perhaps more importantly, that financial service providers want to manage their own risks and will benefit from an external party checking how well they are doing that.

Both goals need to be attended to in good supervisory practice. But you are winning when you are promoting good risk culture and you are in some difficulty when you are forced to focus on checking compliance.

It is important for Europeans to ask themselves: ‘Given how complex our supervisory structures have to be, how do we know we are doing supervision well?’

What we all saw in the banking turmoil of 2023 was how supervisory problems can leave you with a crisis on your hands no matter how good the rules.  Let me take a now-familiar, non-European example: Silicon Valley Bank was an example of a bank with an unusual business model and very substantial interest rate risk, where the supervisors struggled to compel the management to adopt appropriate risk management practices.

The old saying is that hard cases make bad laws, but they do make for good examples for supervisory training.

To achieve good supervisory outcomes, we must promote among our supervisors a capacity for well-balanced and well-informed judgement. Understanding that leads me to suspect that the FSB will need to do more at a global level on the quality of supervision itself. How should the EU also think about this question of the quality of supervision?

Let me illustrate the particular European challenge with a couple of examples: cyber and crypto.

Cyber resilience

In the case of cyber risk, we all know that we are operating in an increasingly dangerous environment.

The challenges are cross-societal rather than financial sector specific; but they are also cross-jurisdictional, particularly as the EU becomes more integrated. The EU has wisely developed an ambitious piece of legislation in the form of the Digital Operational Resilience Act (DORA).

But challenges remain.

Reliance of the EU financial sector on cross-border, third-party, critical service providers is rising. Small companies understandably struggle with the increasingly burdensome and costly requirements of good security. Within member States, regulatory authorities can be fragmented, applying different approaches or standards to different sectors. Incident notification arrangements can be fragmented, slowing the response speed down.

Comprehensive threat intelligence needs to be gathered in every member State, centralized and distributed out. The initiative of the ECB in developing the Threat Intelligence Based Ethical Red-teaming (TIBER) framework is particularly welcome in that it sets a base level for the quality of testing of the resilience of entities which provide core financial infrastructure in the EU. But even this welcome standardised approach to testing faces the risk that the criminals can develop more quickly than the EU community can respond. Inadequate testing can become a dangerous reassurance.  

Jurisdictions in the EU have an opportunity to develop a unified jurisdictional map of the threat landscape. Information in the DORA registers could provide deeper insights into the changing structure of the sector and the emerging risks. I understand that these registers have a way to go in jurisdictions before this information is comprehensive.  But when they are, national analysis of the third-party contracts will provide a rich source of information on concentration risk and channels of systemic risk which should feed into supervisory planning. Getting to that situation is very important precisely because the sector is changing so quickly.

Slow information exchange during an incident can be a major cause of harm. The FSB has done important practical work in developing its Cyber Incident Response toolkit and the Format for Incident Reporting Exchange (FIRE) to promote prompt and efficient responses to attacks. FIRE was developed to tackle fragmented reporting requirements and coordination challenges across jurisdictions. The EU needs consistent, efficient approaches that reduce operational burdens and ensures speedy incident-response communication within and across EU jurisdictions.

Supervisory approaches which engage smaller financial entities to get their defences into as good a state as possible, within the costs they can bear, are needed throughout the EU and will require prudent exercise of judgement by supervisors, rather than a one size fits all approach. Where one sectoral regulator develops good practice, this needs to be shared across the jurisdiction. I cannot over emphasise the importance of a robust schedule of onsite supervisory visits, but done by expert supervisors who understand what good looks like in terms of cyber protections. This is not just about checking that there are cyber risk governance procedures in place, it is about the supervisor providing the senior leadership of a financial services firm with an honest, if sometimes uncomfortable, message about how well prepared they are for a cyber-attack and being listened to when they provide that message. Strong supervisory judgement is required to do that well, but it is costly and difficult to put in place the required expertise.

The EU like many other parts of the world is constantly being eyed by cyber criminals as full of potential rich pickings. Whenever they are successful in the financial sector in the EU, one of the potential reasons for their success might be this complex set of supervisory arrangements under DORA, unless care is taken. I am not saying that the DORA framework is inherently flawed or anything like that. I am saying that its complexity requires – as the ECB recognized with TIBER – that there must be a relentless drive to make this complex system work to a high standard.

The Artificial Intelligence (AI) Act has wisely recognised the cyber risk attaching to AI models. It has imposed on General Purpose Artificial Intelligence Systems, which are systemically risky, requirements for advanced cyber security measures. Supervision sits, again, with national competent authorities, this time with the EU AI Office having a coordinating role. The structure is entirely legitimate. The challenges for the quality of supervision are evident.

Crypto-assets

In its recently published tenth edition of its Nonbank Financial Intermediation Risk Monitor, the European Systemic Risk Board highlighted that the interconnectedness between crypto-assets and traditional finance have intensified at the same time as there has been a sharp rise in crypto-asset valuations and the expansion of stablecoins. They, rightly, emphasised the necessity for comprehensive risk monitoring.

Crypto-assets are an obvious area of emerging risk. This reality demands well-designed regulation and insightful supervisory oversight of these activities.

The EU’s Markets in Crypto-Assets Regulation – or MiCA –aims to establish a comprehensive regulatory framework for crypto-assets, particularly the service providers that operate in this space. From our perspective, having made global recommendations on this issue, this is very welcome.

However, the implementation of MiCA is complex. Much of the supervision is delegated to member States. There is still a distance to go in translating MiCA into fully functioning supervisory regimes across all member States.

This degree of delegation also creates coordination challenges for EU and national authorities, who must ensure that the 27 national competent authorities regulate and supervise crypto-asset activities consistently.

Innovation often outpaces regulation. When regulatory frameworks lag, supervision serves as the critical first line of defence to address emerging risks. It must be good enough.

Supervisors must anticipate threats as crypto firms rapidly expand their products and offerings, such as crypto-asset borrowing and lending, which currently falls outside the scope of MiCA. Regulatory updates will, no doubt, close these gaps in time. In the meantime, having supervision so fully distributed across 27 national authorities is a particular EU challenge for holding the line.

It makes sense to delegate the supervision of small innovative entities to member States. But that is a challenge if operating across borders is at the heart of the business model of those small innovators. It becomes even more of a challenge when some of the entities whose regulation is being delegated in this way are not small innovators but large well-established global firms, as is the case in the crypto sphere.

Supervising crypto-asset service providers requires significant resources and expertise. The delegated model that the EU has adopted requires the EU to duplicate expensive supervisory expertise. Ensuring robust supervisory oversight of complex, globally active entities requires a unified approach that transcends national boundaries, leveraging shared expertise and fostering consistent standards. This challenge, however, is not unique to the EU. In the FSB’s 2024 crypto progress report, 80% of member jurisdictions identified cross-border coordination and cooperation as a ‘very important’ regulatory challenge. But the issue of coordination within the EU is both a particular challenge and a particular opportunity because of the regulatory structure issue.  

Conclusion

In the end, in my view, supervision should target the supervision of the culture of a firm and the goal of supervision should be to promote effective management by the firm of the risks it faces. Of course, that is not always possible. Incentives can be misaligned, and financial services providers can intentionally break rules. In that case, supervision becomes the handmaiden of enforcement. But ideally, we should never reach that point.

One of the questions we have to ask at the FSB is if there is more we can do to promote good supervision across the globe.

One of the questions, you all face as members of the EU is how to achieve robust high standards of supervision across the EU, while respecting the competencies of member States and the complexities of the structure of the EU itself.  One of the choices the EU has to face every time it introduces a new regulatory regime is how to structure the supervisory responsibilities. As such regimes are rolled out, it can become quickly obvious that the chosen structure could be refined for better effect. Where that happens, is the EU able to respond nimbly?

 We are moving further and further into a period where sensitivity to the relationship between regulation and growth is rising, and geopolitical uncertainties are morphing endlessly into new threats and challenges. I suspect all European policy makers will increasingly come to the realisation that weak supervision is becoming even more of a core risk and wise supervision is a strategic opportunity. Just yesterday at this very conference, the Commissioner’s remarks suggest the opportunity is understood. This is good news. Thank You.

Leverage in nonbank financial intermediation

1 September 2025

Talking to Jack Farley from the Monetary Matters podcast, FSB Secretary General John Schindler breaks down the complexities of nonbank leverage and explains what regulators are doing about it, focusing on the FSB recommendations issued in July 2025.

FSB Annual Financial Report: 2024-25

27 August 2025 | PDF full text (763 KB)

This report contains the audited financial statements of the FSB for the 12-month period from 1 April 2024 to 31 March 2025. It also provides details on the FSB governance arrangements and its transparency and accountability mechanisms.

A detailed explanation of the activities undertaken to implement the mandate and tasks of the FSB is provided in the FSB’s Annual Report, which is published separately.

Report of the auditor to FSB Plenary on the financial statements 2024-2025

FSB Regional Consultative Group for the Commonwealth of Independent States meets in Dilijan

25 July 2025

The Financial Stability Board (FSB) Regional Consultative Group for the Commonwealth of Independent States (RCG CIS) met on 25 July in Dilijan. The meeting was hosted by the Central Bank of Armenia, whose Deputy Governor, Armen Nurbekyan, co-chairs the Group.

This was the Group’s first meeting since 2021. Members received an update on the FSB’s work programme and explored ways to support its initiatives, with a particular focus on the G20 Roadmap to enhance cross-border payments and the FSB’s Global Regulatory Framework for Crypto-asset Activities.

Members also discussed crisis preparedness, resolution planning, and strategies to promote cross-border cooperation and information sharing within the region during crises.

Andrew Bailey sets his priorities as FSB Chair

14 July 2025

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  • In his first letter to G20 Finance Ministers and Central Bank Governors as FSB Chair, Andrew Bailey stresses the importance of international coordination on financial regulation against the backdrop of geopolitical tensions.
  • Mr Bailey highlights his priorities for the FSB, namely enhancing surveillance capabilities, addressing key risks to financial stability, and strengthening the effectiveness of the FSB.
  • He also presents the latest report on the FSB’s climate roadmap, which sets out for the G20 that the focus of the FSB climate work in the medium term will be international coordination, information sharing, and strengthening the analysis of the potential for climate-related financial vulnerabilities.

The Financial Stability Board (FSB) today published a letter from its Chair, Andrew Bailey, to G20 Finance Ministers and Central Bank Governors ahead of their meeting on 17-18 July.

In his first letter as FSB Chair, Mr Bailey calls for continued global cooperation and engagement, particularly against the backdrop of geopolitical tensions and rising fragmentation risk.

Mr Bailey outlines his priorities for the FSB, notably:

  • Enhancing surveillance capabilities: the FSB and national authorities’ assessment tools and surveillance capabilities must adapt to the evolving financial system to detect vulnerabilities and allow a targeted, evidence-based response to risks. As part of this, the FSB is to set out concisely – and publish – its assessments of vulnerabilities.
  • Addressing key risks to financial stability: alongside giving more focus to existing initiatives such as the G20 cross-border payments roadmap, the FSB will: (i) support robust implementation of agreed policies on Nonbank Financial Intermediation (NBFI); (ii) explore vulnerabilities from the growing role of private finance; (iii) assess the increasing role of stablecoins for payment and settlement purposes.
  • Strengthening the effectiveness of the FSB: the G20 Implementation Monitoring Review will be the starting point for considering possible improvements in the FSB effectiveness, not just with regard to the implementation of agreed standards, but also in other areas such as communicating with stakeholders outside of its membership.

The letter covers three reports the FSB is delivering to the G20: (i) the FSB’s policy recommendations to address financial stability risks created by leverage in nonbank financial intermediation, (ii) a workplan to address challenges related to nonbank data – both of which were published last week; and (iii) a report updating on work conducted under the FSB Climate roadmap and outlining the FSB’s medium-term approach to potential climate-related financial risks, delivered together with the Chair’s letter.

Notes to editors

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Andrew Bailey, Governor of the Bank of England. The FSB Secretariat is located in Basel, Switzerland and hosted by the Bank for International Settlements.

FSB Chair’s letter to G20 Finance Ministers and Central Bank Governors: July 2025

| PDF full text (104 KB)

New FSB Chair Andrew Bailey tells G20 in Durban that international coordination is more important than ever.

This letter was submitted to G20 Finance Ministers and Central Bank Governors (FMCBG) ahead of the G20’s meeting on 17-18 July 2025.

Having taken up the role of FSB Chair on 1 July 2025, Andrew Bailey sets his priorities for the FSB, notably:

  • Enhancing surveillance capabilities;
  • Addressing key risks to financial stability;
  • Strengthening the effectiveness of the FSB.

The letter advises the G20 of the full range of FSB activities, which includes work to improve the data used by authorities to monitor vulnerabilities, promoting better cross border payment services, analysing potential climate-related impacts on the financial system and tackling the destabilising impacts that leverage can have on the financial system.

The letter underlines the need to remain vigilant to the risk of disruptive market moves as uncertainty continues to weigh on growth expectations. Mr Bailey calls for continued global cooperation and engagement against the backdrop of geopolitical tensions and rising fragmentation risk, and expresses his commitment to upholding the FSB’s mission and strengthen the resilience of the global financial system.

FSB Roadmap for Addressing Financial Risks from Climate Change: 2025 update

| PDF full text (496 KB)

This report to the G20 emphasises the importance of comprehensive, reliable, granular, consistent and comparable information on climate-related financial risks

This report was delivered to the July 2025 meeting of G20 Finance Ministers and Central Bank Governors. It provides a factual update on the work undertaken by the FSB, standard-setting bodies and other international organisations in the four areas identified by the 2021 Roadmap for Addressing Climate-related Financial Risks: firms’ disclosures; data; vulnerabilities analysis; and regulatory and supervisory practices and tools.

At the request of the South African G20 Presidency, the report also provides an outline of the FSB’s medium-term approach to potential climate-related financial risks, identifying the following areas for FSB work: coordination of international efforts, information sharing, vulnerabilities analysis, external engagement.  As part of their annual work programme discussions, FSB members will continue to evaluate how the analysis of topics, such as physical risks and gaps in insurance coverage, may contribute to a better understanding of financial stability risks.

FSB Chair’s speech at the launch event for the FSB’s final report on leverage in nonbank financial intermediation (NBFI)

9 July 2025

Opening remarks by the Chair of the FSB, Andrew Bailey, at the launch event for the leverage in NBFI report, hosted by the Bank of England, 9 July 2025

The views expressed in these remarks are those of the speaker in his role as Chair of the FSB and do not necessarily reflect those of the FSB or its members.

It is a great pleasure to host the launch event for the Financial Stability Board’s NBFI leverage report at the Bank of England, in my capacity as Chair of the FSB. This report is the latest example of the FSB’s vital role in our global financial system: bringing together the expertise of policymakers across the world to enhance financial stability.

Before I begin, I must extend my sincere thanks to my predecessor, Klaas Knot, for his exceptional leadership as FSB Chair during a term beset by shocks and uncertainty. Klaas took on this role during the Covid pandemic, when authorities still working to safeguard the financial system against the vulnerabilities revealed during the Global Financial Crisis (GFC) had to work quicky – and together – to manage an unprecedented global shock.  His dedication was instrumental in ensuring a globally coordinated response, based on the principle – one of several agreed early on by the FSB membership – not to roll back reforms or compromise the objectives of existing international standards. That response spanned numerous areas of the FSB’s work, from banking reforms to crypto regulation, from assessing financial stability impacts of climate to operational resilience. It also included a significant programme of work focused on non-banks.

I will focus on non-banks.

Today, we are publishing recommendations for managing risks related to non-bank leverage. We have the co-chairs of the working group Cornelia Holthausen and Sarah Pritchard to thank for their outstanding leadership in overseeing the production of these recommendations.

Non-bank leverage is very much in focus for regulators and policymakers. And rightly so. Over the past decade, we’ve seen significant changes in the structure of markets, and the increasing role of non-banks. While leverage can bring benefits, we’ve seen repeatedly how excessive and poorly managed leverage can threaten financial stability.

I will also offer my view on what we as policymakers—and the FSB as an institution—need to do to ensure we have the right tools to stay one step ahead in a fast-changing financial landscape.

How did we get to the publication of this NBFI leverage report today?

Over the past 10 to 15 years, the structure of financial markets has changed significantly. After the GFC, there was a deliberate shift to move riskier activities out of the banking sector. This made sense: certain forms of risk-taking are not well-suited to back deposits – doing so could endanger depositors’ funds. These activities are better supported by investment capital, and therefore more appropriately housed in non-banks.

As a result, the non-bank sector has grown substantially. Today, it accounts for around half of global financial system assets. Investment fund assets have expanded globally from roughly $21 trillion in 2008 to $52 trillion in 2023.

This shift has not only changed the size of this sector; it has reshaped how the financial system functions. Much of the activity in core financial markets, and the associated vulnerabilities, now reside outside the banking system. Reliance on non-banks for credit intermediation and liquidity provision has increased. At the same time, business models have become more complex, global, and interconnected—and in some cases, less transparent to regulators and the market.

If not properly managed, these features can lead to sharp spikes in liquidity demand that can outpace supply, procyclicality, fire sales, and sudden jumps to illiquidity. The growing interconnectedness and correlated activity among diverse market participants mean that stress in one part of the system can quickly propagate to others.

To be clear, these changes are not inherently negative. They bring important benefits, like more efficient markets, better price discovery, and broader access to finance for the real economy. But they introduce vulnerabilities – like concentrated, correlated, often opaque positions that cascade through the system to core markets and core institutions – that must be carefully managed to ensure the stability required to support growth and innovation, even under stress.

We saw these vulnerabilities crystalise in 2020. During the onset of the Covid pandemic, global financial markets experienced severe stress in an episode commonly known as the “dash for cash”. The non-bank sector exhibited significant vulnerabilities and signs of a liquidity crisis.

We saw significant outflows from money market and open-ended funds. For example, non-government money market funds saw outflows of 11% to 25%, depending on type and currency. US corporate bond funds experienced weekly outflows of around 5% of assets under management—$109 billion—until central banks stepped in.

We saw the rapid redistribution of liquidity due to margin calls and material dislocations in key government bond markets. The spike in demand for the most liquid and safe assets led to a decoupling between the price of US Treasuries and their futures.

We saw the role that leverage could play in amplifying stress. Hedge funds were forced to unwind $90 billion of their so-called “basis trade” positions as they became largely loss making, contributing to extreme illiquidity in government bond markets.

Public authorities had to intervene in unprecedented ways to prevent further market dysfunction and strain on the real economy.

Since then, we’ve seen further stress episodes highlighting non-bank vulnerabilities. For example: the failure of Archegos, volatility in commodities markets following Russia’s invasion of Ukraine and in UK government bond markets during the LDI crisis, and stress in US Treasury markets in March 2023. In some cases, major public interventions were required to prevent broader economic fallout. In others, we had near misses – including in April this year.

In response to the dash for cash in 2020, the FSB – under Randy Quarles’ leadership – developed a multi-year work programme to assess and address vulnerabilities in the NBFI sector. The goals were clear: reduce excessive spikes in liquidity demand, enhance the resilience of liquidity supply during stress, and improve risk monitoring and preparedness among authorities and market participants.

Developing a policy response to vulnerabilities identified under this work programme has rightly been a priority for the FSB, and for me, as Chair of the FSB’s Standing Committee on Supervisory and Regulatory Cooperation. The case for these priorities has only strengthened as each new stress has hit.

Five years into this programme, we are seeing real progress.

In response to severe liquidity mismatches in money market funds and limited use of liquidity management tools in open-ended funds, the FSB published a new policy framework for MMFs and revised its OEF recommendations in collaboration with IOSCO.

The FSB, BCBS, CPMI, and IOSCO have also issued policies, best practices, and recommendations to improve margining practices and strengthen market participants’ preparedness to meet margin calls.

These are significant achievements.

But, they mean little if jurisdictions do not implement them. As time passes and memories of past crises fade, so does the urgency to implement reforms. But we would be misleading ourselves and the public if we thought these issues have been solved, simply because they haven’t flared up recently. Relying on the past not repeating itself is not a strategy. The global financial system requires sustained vigilance and intervention.    

The NBFI Leverage Report published today marks another major policy reform.

It presents nine policy recommendations to address financial stability vulnerabilities from leverage in non-banks, particularly those in core markets and those arising through interlinkages between leveraged nonbanks and systemically important financial institutions. It provides authorities with a comprehensive toolkit to put in place a domestic framework to identify and monitor financial stability vulnerabilities from NBFI leverage and to take steps to design and calibrate policy measures, or combinations of measures, to contain NBFI leverage where it may give rise to those financial stability risks.

And the report could not be timelier.

Hedge funds and other leveraged investors are growing their positions in sovereign bond markets. This is a global phenomenon, driven in part by increased issuance and changes in investor demand.

In the US, hedge fund exposure to Treasury markets has grown rapidly and now stands at $1.8 trillion long and $1.4 trillion short—close to record highs. In Canada, hedge funds now account for roughly 40% of auction value in Canadian sovereign markets. In the euro area, hedge funds are increasing their derivatives exposures. In the UK, hedge fund net repo borrowing is at its highest since data collection began in 2016, with seven funds accounting for 90% of that.

The growth of leveraged strategies, along with concentration, and crowded positions in certain markets, is concerning. These trends can amplify shocks and impact liquidity. The global nature of leveraged NBFIs and their interconnection with financial markets means that shocks in one jurisdiction can easily spill over to another.

Implementing the report’s recommendations is therefore critical. The recommendations have been designed to allow for flexibility in terms of implementation. That said, international cooperation and coordination in policy design and implementation are essential given the high cross-border interconnection and potential for spill-over risks.

I said I would come back to what we as policy makers must do to ensure we have the right tools to stay one step ahead in a changing world.

Two challenges stand out.

First, in today’s uncertain environment, strengthening our ability to anticipate and assess vulnerabilities is more important than ever. Surveillance enables us not only to identify risks but to respond with targeted, evidence-based action. The FSB, with its unique cross-border vantage point, has a vital role to play in facilitating global financial stability surveillance. So both the FSB and national authorities must have robust, forward-looking toolkits to identify existing and emerging vulnerabilities across the financial system that allow us to take steps to mitigate them before they crystalise and propagate through the financial system. And showing the results of our surveillance can help participants better manage their risks too. The financial system has evolved significantly, and our assessment tools must evolve with it. 

Data are one area where we are already leveraging international cooperation to make progress. A key obstacle to better surveillance is the persistent lack of timely, risk-focused data in non-banks, particularly around leverage, concentration, correlation, and crowded trades in core markets.

This is not a domestic issue. In some jurisdictions data gaps stem from the cross-border nature of sovereign bond markets and the absence of comprehensive data covering all market participants. So the FSB has launched a Task Force to address these data gaps and enable authorities to better identify vulnerabilities in financial markets.

Second, we must ensure that the policies we’ve agreed at the international level are fully and effectively implemented domestically.

This is especially important in a world where attitudes toward regulation are shifting, and growth is a priority. I want to underscore that sustainable growth requires a resilient financial system – there is no trade-off between financial stability and growth.

Effective implementation is essential to strengthening the stability of the financial system—especially in today’s uncertain and fragmented global environment. It enables a level playing field on which cross-border firms can operate, helping to guard against regulatory arbitrage and market fragmentation which can arise when reforms are applied inconsistently across jurisdictions.

International coordination is therefore critical—not just in designing and calibrating reforms, but in putting them into practice. While some progress has been made, implementation has been slow in some areas. For other NBFI reforms, it is still early days.

During my term as Chair, I will focus on driving progress in both of these areas.