With the main elements of the post-crisis reforms agreed and implementation underway, more detailed analysis of the effects of those reforms is becoming possible. The FSB, in collaboration with the standard-setting bodies (SSBs), is working to enhance the analysis of the effects of reforms, including whether the reforms are working together as intended.

Framework for post-implementation evaluation of the effects of reforms

The FSB, in close collaboration with the SSBs, and informed by work carried out by its members and other stakeholders, has developed a framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms during the German G20 Presidency. The framework benefited from public responses.

The framework aims to guide analyses of whether the G20 reforms are achieving their intended outcomes, and help identify any material unintended consequences that may have to be addressed, without compromising on the objectives of the reforms. Applying such a framework will inform structured policy discussions among the FSB and SSBs.

The focus of the framework is on evaluations of the effects of G20 financial regulatory reforms for which implementation is well underway or completed. The framework:

  • Clarifies relevant concepts and terms, with the aim of achieving a common understanding by FSB members and relevant stakeholders;
  • Outlines approaches, including evaluation tools, to address the methodological challenges inherent in policy evaluations; and
  • Lays out the process for operationalising evaluations.

The framework is a living document that will be enhanced as experience is gained and its roll-out will take place progressively in the coming years. The FSB also published a Technical Appendix and Frequently Asked Questions when the report was published.

Evidence on the effects of reforms

The main findings on the effects of reforms are summarised in the annual FSB reports to the G20 on the implementation and effects of the G20 financial regulatory reforms. These reports include analysis on the overall effects of reforms on global financial system resilience and financial intermediation; areas for ongoing attention regarding the possible interaction and effects of the reforms; and the main findings from any evaluations undertaken over the previous year.

The FSB published its third annual report to the G20 on the implementation and effects of the G20 financial regulatory reforms in July 2017. Below is an extract from the Executive Summary of this report on the effects of reforms.

The evidence on effects of reforms to date shows that higher resilience is being achieved without impeding the supply of credit to the real economy:

  • The core of the banking system is significantly more resilient, with large internationally active banks continuing to build capital and liquidity buffers.
  • The financial system is more diversified, including through the growth in market-based finance.
  • Growth in total credit and bank lending has resumed in all regions, albeit at different paces, while the cost of financing has remained low. Exceptionally accommodative monetary policies have contributed to this outcome.

However, authorities need to remain vigilant in a number of areas:

  • Maintaining an open and integrated global financial system – International bank lending, particularly by European banks, has declined since the crisis and its structure has shifted towards more stable regionally funded lending. Financing through international debt markets has continued to grow, and there is greater use of global infrastructures for trading, clearing and settlement. Nonetheless, the risks of geographic market fragmentation remain and should be monitored.
  • Market liquidity – There continues to be limited evidence of a broad reduction in market liquidity in normal times and the reforms have lowered the likelihood that a reduction in market liquidity could result in wider financial stability problems. The FSB continues to monitor fixed income and derivatives market liquidity (including banks’ role as market intermediaries) and will further analyse its resilience under stressed conditions.
  • Effects of reforms on emerging market and developing economies (EMDEs) – Some EMDEs continue to report implementation challenges and concerns from the reduction in global banks’ activity in their domestic markets. To date, however, these do not seem to have significantly impacted EMDEs’ overall credit growth.

Over the past year, the FSB completed assessments in two core reforms:

  • OTC derivatives – While the long-term economic effects of the reforms remain difficult to assess, progress has been made toward meeting the G20 objectives. Meaningful progress has been made toward mitigating systemic risk. Central clearing is simplifying much of the previously complex and opaque web of derivatives exposures, and central counterparties (CCPs) are more resilient. In addition, more collateral is in place in the system. There is progress in improving transparency through use of trade repositories (TRs) and platform trading. International work is taking place to improve the resilience, recovery planning and resolvability of CCPs; improve data quality and remove legal barriers to reporting and accessing TR data; and evaluate the interaction of reforms on incentives to clear OTC derivatives centrally.
  • Shadow banking – The aspects of shadow banking that contributed to the financial crisis have declined significantly and generally no longer pose financial stability risks. Reforms have also contributed to a reduction in vulnerabilities in areas such as money market funds and repos. But investment funds have grown, underscoring the importance of effective operationalisation and implementation of policies agreed to address their structural vulnerabilities, and new forms of shadow banking may develop. While no new stability risks that would warrant additional regulatory action at the global level have been identified, work is needed by FSB jurisdictions to implement fully the agreed policy recommendations and enhance data collection and analysis to capture emerging risks in a timely manner.