Post-2008 Financial Crisis Reforms
Following the 2008 financial crisis, the G20 committed to fundamental reform of the global financial system given the significant economic and social damage that it caused. The objectives were to correct the fault lines that led to the global crisis and to build safer, more resilient sources of finance to better the needs of the real economy. The G20 called on the FSB to develop and coordinate a comprehensive framework for global regulation and oversight of what is now a global financial system.
By reducing the risk of future financial crises and the consequences of financial instability for the real economy, these reforms were an essential contribution to the G20’s primary objective of strong, sustainable and balanced growth. The priority reforms areas are set out below.
To ensure that the agreed reforms were implemented, the FSB put in a place a detailed implementation monitoring regime and has conducted a number of evaluations to assess the effects of the reforms.
Building Resilient Financial Institutions
More and better regulatory capital requirements, strengthened risk management practices and better aligned compensation structures will build more resilient financial institutions.
Ending Too-Big-To-Fail
The SIFI Framework aims to address the systemic risks and the associated moral hazard problem for institutions that are seen by markets as too-big-to-fail.
Effective Resolution Regimes and Policies
Financial institutions should be resolvable in an orderly manner without severe systemic disruption or exposing the taxpayer to the risk of loss, by protecting critical functions and by using mechanisms for losses to be absorbed (in order of seniority) by shareholders and unsecured and uninsured creditors.
More Effective Supervision
The level of supervision applied by national authorities must be commensurate with the potential destabilisation risk that such firms pose to their own domestic financial systems, as well as the broader international financial system.
Making Derivatives Markets Safer
OTC derivatives market reforms include trade reporting, central clearing, trading on exchanges or electronic trading platforms, capital and margin requirements for non-centrally cleared transactions.
Enhancing Resilience of Non-bank Financial Intermediation
Non-bank financial intermediation provides a valuable alternative to bank financing and helps to support real economic activity. The FSB’s work in this area is focused on monitoring and addressing risks to financial stability arising from credit intermediation by non-banks.
Addressing Data Gaps
This initiative provides authorities with a stronger framework for assessing potential systemic risks and clearer sight of the interconnectedness of the largest financial institutions.
Legal Entity Identifier (LEI)
A uniform global LEI system provides a valuable ‘building block’ to contribute to and facilitate many financial stability objectives, including improved risk management in firms, better assessment of micro and macroprudential risks, facilitation of orderly resolution, and enabling higher quality and accuracy of financial data overall.
Reducing Reliance on Credit Ratings
Reliance on credit agency ratings to the exclusion of internal credit assessments can be a cause of herding behaviour or “cliff effects” which can amplify procyclicality and cause systemic disruption.
Improving Risk Disclosures
Reliable and relevant valuations and disclosures of the risks to which financial institutions are exposed are important to maintain overall market confidence.
