Update on financial regulatory factors affecting the supply of long-term investment finance
G20 Finance Ministers and Central Bank Governors have recently emphasised the importance of long-term financing for investment, including in infrastructure, in enhancing economic growth and job creation.
At the meeting of the Ministers and Governors in November 2012, the FSB was asked to undertake diagnostic work, together with other relevant international organisations (IOs), to assess factors affecting long-term (LT) investment financing. In February 2013, the FSB reported initial findings to the G20 on the financial regulatory factors affecting the availability of LT investment finance, as part of broader diagnostic work undertaken by IOs. Ministers and Governors welcomed the report by IOs and established a new Study Group on Financing for Investment to consider issues raised in the report. In addition, Ministers and Governors asked the FSB to "continue to monitor the possible effects of regulatory reforms on the supply of long-term financing" as one important component of this work.
To support the response to the request, the FSB organised a workshop in June 2013 to identify specific financial regulatory factors that may be impeding the provision of LT finance and that may warrant a policy response at the international level, without compromising global financial stability objectives. This note summarises the main conclusions of the workshop and the implications for future monitoring.
As highlighted in the February FSB report, the most important contribution of financial regulation to LT investment finance is to promote a safe, sound and resilient financial system. It should also be noted that promotion of LT investment itself is conducive to financial stability. If implemented in a timely and consistent manner, reforms to financial regulation will help rebuild confidence in the global financial system, which will enhance its ability to intermediate financial flows through the cycle and over different investment horizons. For this reason, the G20 regulatory reform programme is supportive of LT investment and economic growth.
The regulatory reforms do not specifically target LT finance. Nonetheless, financial regulation affects market structures and the incentives of different types of financial institutions to participate in different markets, as well as the costs of different types of transactions. As the balance of incentives changes, participants in the capital market and institutional investors which are the most natural providers of LT finance in the financial system will need to assume a greater role in the provision of LT finance. Continue reading