Effects of Reforms
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, developed a framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms. The framework guides analyses of whether the G20 reforms are achieving their intended outcomes, and helps identify any material unintended consequences that may have to be addressed, without compromising on the objectives of the reforms. Applying such a framework informs 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 with evaluations. The FSB also published a Technical Appendix and Frequently Asked Questions when the framework was published.
Evidence on the effects of reforms
The main findings on the effects of reforms are summarised in the annual FSB reports on the implementation and effects of the G20 financial regulatory reforms (see below). 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.
Evaluation on the effects of reforms on infrastructure finance
The FSB published in November 2018 its final report on the Evaluation of the effects of financial regulatory reforms on infrastructure finance. The evaluation is among the first under the FSB framework, and forms part of a broader FSB examination of the effects of reforms on financial intermediation. It focuses on infrastructure finance that is provided in the form of corporate and project debt financing (loans and bonds), for which the financial regulatory reforms are of most immediate relevance. The report concludes that the effect of the G20 reforms on infrastructure finance has been of a second order relative to factors such as the macro-financial environment, government policy and institutional factors. In particular, for the reforms that have been largely implemented and are most relevant for this evaluation – namely, the initial Basel III capital and liquidity requirements (agreed in 2010) and over-the-counter derivatives reforms – the analysis does not identify material negative effects on the provision and cost of infrastructure finance to date.
Evaluation on the effects of reforms on incentives to centrally clear OTC derivatives
The FSB, the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published in November 2018 their final report on Incentives to centrally clear over-the-counter (OTC) derivatives. The analysis in the report suggests that, overall, the relevant post-crisis reforms – in particular the capital, margin and clearing reforms – are achieving their goals of promoting central clearing, especially for the most systemic market participants. This is consistent with the goal of reducing complexity and improving transparency and standardisation in the OTC derivatives markets. Beyond the systemic core of the derivatives network of central counterparties, dealers/clearing service providers and larger, more active clients, the incentives are less strong. The evaluation suggests that the treatment of initial margin in the leverage ratio can be a disincentive for banks to offer or expand client clearing services. Bearing in mind the original objectives of the reform, additional analysis would be useful to further assess these effects.