This report describes progress over the past year and planned work by the FSB, as well as by standard-setting bodies (SSBs) and other international organisations, to enhance the resilience of non-bank financial intermediation (NBFI) under the FSB’s NBFI work programme.

The main focus of the FSB’s work over the past year was to assess and address vulnerabilities in specific NBFI areas that may have contributed to the build-up of liquidity imbalances and their amplification in times of stress. These areas include money market funds, open-ended funds, margining practices, bond market liquidity and fragilities in USD cross-border funding. The work conducted this year augments the framework for NBFI resilience presented in last year’s progress report by identifying a set of activities and types of entities, or “key amplifiers”, that may particularly contribute to aggregate liquidity imbalances and the transmission and amplification of shocks due to their size, structural characteristics and behaviour in stress.

Drawing on the findings of the work by the FSB and SSBs in these areas, the report sets out policy proposals to address systemic risk in NBFI, focusing on key amplifiers. These proposals aim to: reduce liquidity demand spikes; enhance the resilience of liquidity supply in stress; and enhance risk monitoring and the preparedness of authorities and market participants.

The main focus of the proposals is to reduce excessive spikes in the demand for liquidity by addressing the vulnerabilities that drive those spikes (e.g. by reducing liquidity mismatch or the build-up of leverage) or by mitigating their financial stability impact (e.g. by ensuring that redeeming investors pay the cost of liquidity and by enhancing the liquidity preparedness of market participants to meet margin calls).

The policy proposals involve largely repurposing existing policy tools rather than creating new ones, given the extensive micro-prudential and investor protection toolkit already available. However, experience with the use of these tools for systemic risk mitigation is limited to date. The FSB will assess in due course whether repurposing such tools is sufficient to address systemic risk in NBFI, including the need to develop additional tools for use by authorities. 

The FSB will develop additional metrics and tools to monitor NBFI vulnerabilities; enhance its analysis of NBFI vulnerabilities through targeted deep dives; and integrate findings from the work on the use of already available data (e.g. in trade repositories) for monitoring systemic risk.