1 July 2020
Claudia M. Buch, Vice-President, Deutsche Bundesbank sets out the conclusions from the FSB’s evaluation of the effects of too-big-to-fail reforms. The report finds that too-big-to-fail reforms made banks more resilient and resolvable, but gaps need to be addressed. Responses to the public consultation are invited by 30 September 2020.
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Ref no: 20/2020
The Financial Stability Board (FSB) has discussed the impact of COVID-19 on global benchmark transition. The FSB’s Official Sector Steering Group (OSSG) is monitoring the developments closely and recognises that some aspects of firms’ transition plans are likely to be temporarily disrupted or delayed, while others can continue. The FSB maintains its view that financial and non-financial sector firms across all jurisdictions should continue their efforts in making 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.
LIBOR transition remains an essential task that will strengthen the global financial system. COVID-19 has highlighted that the underlying markets LIBOR seeks to measure are no longer sufficiently active. Moreover, these markets are not the main markets that banks rely upon for funding. The increase in the most widely used LIBOR rates in March put upward pressure on the financing cost of those paying LIBOR-based rates. For those borrowers, this offset in large part the reductions in interest rates in those jurisdictions where central banks have lowered policy rates.
Relevant national working groups are co-ordinating changes to intermediate milestones in their benchmark transition programmes, where appropriate, to ensure global coordination. Financial and other firms should continue to ensure that their transition programmes enable them to transition to LIBOR alternatives before end-2021.
LIBOR transition is a G20 priority, and the G20 in its February 2020 communique asked the FSB to identify remaining challenges to benchmark transition by July 2020 and to explore ways to address them. The FSB will publish a report on these issues later this month. FSB members, in collaboration with other standard-setting bodies and international institutions, will continue to monitor developments.
The FSB set out in 2014 a series of recommendations for strengthening key interbank offered rates (IBORs) in the unsecured lending markets, and for promoting the development and adoption of alternative nearly risk-free reference rates, where appropriate. The FSB and member authorities, through the FSB Official Sector Steering Group (OSSG) chaired by Andrew Bailey (Governor, Bank of England) and John Williams (President and CEO, Federal Reserve Bank of New York), are working to implement and monitor these recommendations. The FSB published its most recent annual progress report in December 2019 on implementation of the recommendations.
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 Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.
30 June 2020 | PDF full text (986 KB)
This report presents the results from the fifth non-bank financial intermediation (NBFI) monitoring exercise in the Americas published by the FSB Regional Consultative Group (RCG) for the Americas. The aim of this monitoring exercise is to assess the size, structure and trends of the NBFI sector in the region. This information is crucial in order to identify potential risks to financial stability at the jurisdiction level, as well as those arising from potential cross-border linkages.
The report concludes that total regional NBFI assets, reached over $127trn at end-2018, experiencing only minimal growth of 0.15% during 2018, which contrasts with an annualised growth of 5.6% for the period between 2012 and 2017.
The narrow measure, which is NBFI activities that may pose bank-like financial stability risks, reached $22.9trn at end-2018, up from $22.1trn at end-2017.
This document has been prepared by the FSB RCG for the Americas and is being published to disseminate information to the public. The views expressed in the document are those of the RCG for the Americas and do not necessarily reflect those of the FSB.
The FSB’s Global Monitoring Report on Non-Bank Financial Intermediation 2019 sets out more details for NBFI activities across the FSB’s membership.
29 June 2020
As part of the holistic framework for the assessment and mitigation of systemic risk in the insurance sector, the IAIS enhanced the enterprise risk management (ERM) requirements to more explicitly address liquidity risk. The Application Paper on Liquidity Risk Management provides guidance on this supervisory material related to liquidity risk management in the Insurance Core Principles (ICPs) and the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame).
The Paper does not establish standards or expectations for the implementation of a liquidity risk management framework, but instead provides additional detail on particular aspects of the Supervisory Material relating to liquidity risk to assist implementation, and also provides examples of good practice.
This Paper provides guidance and examples on:
considerations on applying liquidity risk management measures in a proportionate way and the ways that supervisors may tailor requirements.
detailed components of the four elements for “more detailed risk management processes” contained in ICP Standard 16.9:
liquidity stress testing;
maintenance of a portfolio of unencumbered highly liquid assets in appropriate locations;
a contingency funding plan; and
the submission of a liquidity risk management report to the supervisor.
integration of liquidity risk into insurers’ ERM frameworks as described in ICP Standard 16.8, including recommendations for governance.
28 June 2020 | PDF full text (4 MB)
This report, for public consultation, provides an evaluation of too-big-to-fail (TBTF) reforms for systemically important banks. These reforms were endorsed by the G20 in the aftermath of the 2008 global financial crisis and have been implemented in FSB jurisdictions over the past decade. The evaluation examines the extent to which the reforms are reducing the systemic and moral hazard risks associated with systemically important banks, as well as their broader effects on the financial system.
The reforms being evaluated include: (i) standards for additional loss absorbency through capital surcharges and total loss-absorbing capacity requirements; (ii) recommendations for enhanced supervision and heightened supervisory expectations; and (iii) policies to put in place effective resolution regimes and resolution planning to improve the resolvability of banks.
In particular, the evaluation found that:
Systemically important banks are better capitalised and have built up significant loss-absorbing capacity. The capital ratios of global systemically important banks have doubled since 2011.
Many FSB jurisdictions have introduced comprehensive bank resolution regimes and are carrying out resolution planning. This gives authorities a wide range of options for dealing with banks in stress.
Evidence from market prices and credit ratings suggest that these reforms are seen as credible by market participants.
Material negative side effects of the reforms have not been observed. Other market participants have stepped into areas where large banks have reduced their activities, while market fragmentation has not increased.
On a conservative estimate of the probability and costs of financial crisis, the reforms have produced net benefits to society.
Resolution of banks is a complex process, and some obstacles to resolvability remain. The FSB continues its work to make sure these are addressed and to encourage full implementation of the resolution reforms.
Supervisors, firms and markets have much better information than before the implementation of the reforms, but reporting and disclosures could still be improved.
The evaluation, which was conducted before the onset of the COVID-19 pandemic, draws on a broad range of information sources and is based on numerous empirical analyses and extensive stakeholder feedback.
The FSB has also published a technical appendix to the evaluation, which provides the detailed empirical evidence for the conclusions reached. Estimates of the social costs and benefits of the TBTF reforms and a Resolution Reform Index were also published.
Responses to the public consultation should be sent to [email protected] by 30 September 2020 with “TBTF consultation” in the subject line. All responses will be published on the FSB website unless respondents request otherwise.
Press enquiries:
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Ref no: 19/2020
The Financial Stability Board (FSB) today published for public consultation an evaluation of too-big-to-fail (TBTF) reforms for systemically important banks. The TBTF reforms were endorsed by the G20 in the aftermath of the 2008 global financial crisis and have been implemented in FSB jurisdictions over the past decade. The evaluation examines the extent to which the reforms are reducing the systemic and moral hazard risks associated with systemically important banks, as well as their broader effects on the financial system.
Claudia M. Buch, Vice-President of the Deutsche Bundesbank and chair of the group that produced the report, said: “The too-big-to-fail reforms have made banks more resilient and have given authorities more options for dealing with shocks. And as we are learning how the new system is working, we are also learning where it can still be improved.”
The key findings of the evaluation are that:
Systemically important banks are better capitalised and have built up significant loss-absorbing capacity. The capital ratios of global systemically important banks have doubled since 2011.
Many FSB jurisdictions have introduced comprehensive bank resolution regimes and are carrying out resolution planning. This gives authorities a wide range of options for dealing with banks in stress.
Evidence from market prices and credit ratings suggest that these reforms are seen as credible by market participants.
Material negative side effects of the reforms have not been observed. Other market participants have stepped into areas where large banks have reduced their activities, while market fragmentation has not increased.
On a conservative estimate of the probability and costs of financial crisis, the reforms have produced net benefits to society.
Resolution of banks is a complex process, and some obstacles to resolvability remain. The FSB continues its work to make sure these are addressed and to encourage full implementation of the resolution reforms.
Supervisors, firms and markets have much better information than before the implementation of the reforms, but reporting and disclosures could still be improved.
Responses to the public consultation are invited by 30 September 2020.
The TBTF reforms being evaluated have three components: (i) standards for additional loss absorbency through capital surcharges and total loss-absorbing capacity requirements; (ii) recommendations for enhanced supervision and heightened supervisory expectations; and (iii) policies to put in place effective resolution regimes and resolution planning to improve the resolvability of banks.
The evaluation, which was conducted before the onset of the COVID-19 pandemic, draws on a broad range of information sources and is based on numerous empirical analyses and extensive stakeholder feedback. The FSB has also published a technical appendix to the evaluation, which provides the detailed empirical evidence for the conclusions reached.
This evaluation, the fourth published by the FSB, was undertaken using the FSB’s framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms. The next FSB evaluation will be on the effects of money market fund reforms; more information on the timeline and scope of this evaluation will be available in due course.
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 Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.
Opening statement by Claudia M. Buch, Vice-President, Deutsche Bundesbank, for an FSB press briefing.
25 June 2020 | PDF full text (393 KB)
Speaking on a Peterson Institute virtual panel, Dietrich Domanski set out the importance of internationally coordinated action to support a well-functioning, resilient financial system and open markets during the COVID-19 pandemic. He noted that the global financial system is more resilient and better placed to sustain financing to the real economy as a result of the G20 regulatory reforms in the aftermath of the 2008 global financial crisis.
5 June 2020
Press enquiries:
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Ref no: 18/2020
The Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Americas held a conference call today to discuss global and regional macroeconomic and financial market developments and their potential impact on economies in the Americas.
Members exchanged views on the latest financial stability implications of COVID-19. They considered the effectiveness of the wide range of policy measures authorities have taken to sustain the supply of credit to the real economy, to support financial intermediation, and to preserve the functioning and resilience of the individual and global financial systems.
The group also received an update on the FSB’s work programme, which has been re-prioritised to focus on responding to the impact of COVID-19 on the financial system. Members welcomed the FSB’s policy work on enhancing global payment systems and discussed payments issues in the Americas. The group received an update on the FSB’s work on benchmark rates transition and supported the FSB’s initiative to remove remaining dependencies on LIBOR by the end of 2021.
In light of a forthcoming monitoring report to be published later this month by the RCG, members discussed trends and developments in non-bank financial intermediation (NBFI) in the Americas. The monitoring report will be the fifth in a series of reports by the RCG since 2012 that assess the size, structure and recent trends of the NBFI sector in the region, in order to identify potential risks to financial stability at the local jurisdiction level, as well as those arising from potential cross-border linkages.
The FSB RCG for the Americas is co-chaired by Alejandro Díaz de León-Carrillo, Governor, Bank of Mexico and Cindy Scotland, Managing Director, Cayman Islands Monetary Authority. Membership includes financial authorities from Argentina, Bahamas, Barbados, Bermuda, Bolivia, Brazil, British Virgin Islands, Canada, Cayman Islands, Chile, Colombia, Costa Rica, Guatemala, Honduras, Jamaica, Mexico, Panama, Paraguay, Peru, Trinidad and Tobago, the United States of America and Uruguay.
The FSB has six Regional Consultative Groups, established under the FSB Charter, to bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability.1 Typically, each Regional Consultative Group meets twice each year.
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 is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.