Supervisory issues associated with benchmark transition: Report to the G20

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This report published by the Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS) concludes that the continued reliance of global financial markets on LIBOR poses clear risks to global financial stability. Transition away from LIBOR by end–2021 requires significant commitment and sustained effort from both financial and non-financial institutions across many jurisdictions. On 1 July the FSB reiterated its view that financial and non-financial sector firms across all jurisdictions should continue their efforts to make wider use of risk-free rates to reduce reliance on IBORs where appropriate and in particular to remove remaining dependencies on LIBOR by the end of 2021.

The report includes insights on remaining challenges to transition based on surveys undertaken by the FSB, the BCBS and the International Association of Insurance Supervisors (IAIS ). It sets out recommendations for authorities to support financial institutions’ and their clients’ progress in transitioning away from LIBOR.

Most FSB jurisdictions have a strategy in place to address LIBOR transition, as opposed to only half of the surveyed non-FSB jurisdictions. Authorities in LIBOR jurisdictions are relatively more advanced in taking initiatives to facilitate and monitor benchmark transition. Financial institutions in these jurisdictions have shown better progress, although significant challenges remain. In light of the expected cessation of LIBOR after end-2021, authorities should strengthen their efforts in facilitating financial and non-financial institutions to transition away from LIBOR.

The report includes three sets of recommendations to support LIBOR transition that should generally be applicable to all jurisdictions with LIBOR exposures.

  • Identification of transition risks and challenges – authorities and standard-setting bodies to issue public statements to promote awareness and engage with trade associations, and authorities to undertake regular surveys of LIBOR exposure and to request updates from financial institutions.
  • Facilitation of LIBOR transition – authorities to establish a formal transition strategy supported by adequate resources and industry dialogue. Supervisory authorities should consider increasing the intensity of supervisory actions when the preparatory work of individual banks is unsatisfactory.
  • Coordination – authorities to promote industry-wide coordination, maintain dialogue on the adoption of fallback language, consider identifying legislative solutions, where necessary, and exchange information on best practices and challenges. The FSB and the standard-setting bodies will coordinate at the international level to identify key common metrics for monitoring transition progress.

LIBOR transition is a G20 priority and the report responds to the G20 request to identify remaining challenges to benchmark transition and to explore ways to address them. The report is a deliverable for the G20 Finance Ministers and Central Bank Governors virtual meeting on 18 July.

The FSB set out in 2014 a series of recommendations for strengthening key interbank offered rates (IBORs) in the unsecured lending markets, and for promoting the development and adoption of alternative nearly risk-free reference rates, where appropriate. The FSB published its most recent annual progress report in December 2019 on implementation of the recommendations.

FSB and Basel Committee set out supervisory recommendations for benchmark transition

  • Continued reliance of financial markets on LIBOR poses clear risks to global
    financial stability.
  • Transition away from LIBOR by end-2021 requires significant commitment and sustained effort from both financial and non-financial institutions.
  • Report includes three sets of recommendations to support LIBOR transition.

The Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS) today published a report on Supervisory issues associated with benchmark transition. Continued reliance of financial markets on LIBOR poses clear risks to global financial stability. Transition away from LIBOR by end-2021 requires significant commitment and sustained effort from both financial and non-financial institutions across many jurisdictions. The report includes insights on remaining challenges to transition based on surveys undertaken by the FSB, the BCBS and the International Association of Insurance Supervisors (IAIS). It sets out recommendations for authorities to support financial institutions’ and their clients’ progress in transitioning away from LIBOR.

Most FSB jurisdictions have a strategy in place to address LIBOR transition, as opposed to only half of the surveyed non-FSB jurisdictions. Authorities in LIBOR jurisdictions are relatively more advanced in taking initiatives to facilitate and monitor benchmark transition. Financial institutions in these jurisdictions have shown better progress, although significant challenges remain. In light of the expected cessation of LIBOR after end-2021, authorities should strengthen their efforts in facilitating financial and non-financial institutions to transition away from LIBOR.

The report includes three sets of recommendations to support LIBOR transition that should generally be applicable to all jurisdictions with LIBOR exposures.

  • Identification of transition risks and challenges – authorities and standard-setting bodies to issue public statements to promote awareness and engage with trade associations, and authorities to undertake regular surveys of LIBOR exposure and to request updates from financial institutions.
  • Facilitation of LIBOR transition – authorities to establish a formal transition strategy supported by adequate resources and industry dialogue. Supervisory authorities should consider increasing the intensity of supervisory actions when the preparatory work of individual banks is unsatisfactory.
  • Coordination – authorities to promote industry-wide coordination, maintain dialogue on the adoption of fallback language, consider identifying legislative solutions, where necessary, and exchange information on best practices and challenges. The FSB and the standard-setting bodies will coordinate at the international level to identify key common metrics for monitoring transition progress.

LIBOR transition is a G20 priority and the report responds to the G20 request to identify remaining challenges to benchmark transition and to explore ways to address them. The report will be delivered to G20 Finance Ministers and Central Bank Governors ahead of their virtual meeting on 18 July.

Notes to editors

The FSB set out in 2014 a series of recommendations for strengthening key interbank offered rates (IBORs) in the unsecured lending markets, and for promoting the development and adoption of alternative nearly risk-free reference rates, where appropriate. The FSB published its most recent annual progress report in December 2019 on implementation of the recommendations. The BCBS published a newsletter in February 2020 outlining regulatory and supervisory implications related to benchmark rate reforms.

Press enquiries:

BCBS: +41 61 280 8188, [email protected]

FSB: +41 61 280 8138, [email protected]

IAIS publishes supervisory recommendations to address remaining challenges of LIBOR transition in the insurance sector

8 July 2020

Central Bank Transparency Code (CBT)

2 July 2020

View the Standard

Transparency is a key element of central bank accountability. Over the last two decades, central banks were granted broader mandates to pursue a range of new policy goals and a large degree of autonomy. As the diversity and complexity of central banks’ operational toolkits increased following the 2008 Global Financial Crisis and more recently the COVID-19 pandemic, the level of challenges over the use of unconventional monetary policy measures have increased. Consequently, these challenges prompted calls for greater public scrutiny, and highlighted the importance of balancing central bank autonomy with appropriate accountability and transparency arrangements. Transparency facilitates accountability by informing legislatures, markets, citizens, and other stakeholders on a central bank’s performance and compliance with its mandate and also can improve policy effectiveness.

The CBT consists of a five-pillar framework, covering every aspect of central banking. These pillars cover principles on a central bank’s: (i) transparency in governance (including, for example, its legal framework, governance, accountability arrangements, communications, and confidentiality); (ii) transparency in policies; (iii) transparency in operations; (iv) transparency in outcome; and (v) transparency in official relations. Pillars II, III, and IV relate to the key central bank functions, that is, monetary policy, foreign exchange (FX) management and administration, international reserve management, macroprudential policy, emergency liquidity assistance (ELA), financial integrity, and consumer protection.

The CBT allows central banks to map their transparency frameworks, enhance their accountability, contribute to policy effectiveness, and improve dialogue with their stakeholders. The CBT considers transparency as an institutional feature aimed at ensuring comprehensive public access to the information on the central bank and its activities, at the same time striking the appropriate balance between transparency and a legitimate need for confidentiality. Central banks could assess their existing transparency frameworks using the CBT, which allows for more informed central bank choices on transparency and more effective communication between the central bank and its various stakeholders. In doing so, a better understanding of the rationale for central bank autonomy, mandate, governance, policies, operations, outcomes, and official relations will reduce uncertainty and facilitate a public dialogue that can anchor public expectations and foster better policies.

Assessment Methodology

View the Assessment Methodology

CBT Reviews are based on the CBT Guidance Note. The Guidance Note is available on the CBT website. This document provides guidance and practical suggestions for conducting reviews of the Central Bank Transparency Code (CBT) to IMF staff and experts conducting reviews, as well as to the central banks participating or intending to participate in the CBT review. The Guidance Note is not intended to be a detailed or prescriptive manual for measuring transparency, nor is this the intention of the CBT. Instead, the reviewer(s) should use the note to guide their reviews, while maintaining sufficient flexibility for interpretation and country-specific circumstances.

Conclusions from the FSB’s too-big-to-fail evaluation

1 July 2020

Claudia M. Buch, Vice-President, Deutsche Bundesbank sets out the conclusions from the FSB’s evaluation of the effects of too-big-to-fail reforms. The report finds that too-big-to-fail reforms made banks more resilient and resolvable, but gaps need to be addressed. Responses to the public consultation are invited by 30 September 2020.

FSB statement on the impact of COVID-19 on global benchmark reform

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 20/2020

The Financial Stability Board (FSB) has discussed the impact of COVID-19 on global benchmark transition. The FSB’s Official Sector Steering Group (OSSG) is monitoring the developments closely and recognises that some aspects of firms’ transition plans are likely to be temporarily disrupted or delayed, while others can continue. The FSB maintains its view that financial and non-financial sector firms across all jurisdictions should continue their efforts in making wider use of risk-free rates in order to reduce reliance on IBORs where appropriate and in particular to remove remaining dependencies on LIBOR by the end of 2021.

LIBOR transition remains an essential task that will strengthen the global financial system. COVID-19 has highlighted that the underlying markets LIBOR seeks to measure are no longer sufficiently active. Moreover, these markets are not the main markets that banks rely upon for funding. The increase in the most widely used LIBOR rates in March put upward pressure on the financing cost of those paying LIBOR-based rates. For those borrowers, this offset in large part the reductions in interest rates in those jurisdictions where central banks have lowered policy rates.

Relevant national working groups are co-ordinating changes to intermediate milestones in their benchmark transition programmes, where appropriate, to ensure global coordination. Financial and other firms should continue to ensure that their transition programmes enable them to transition to LIBOR alternatives before end-2021.

LIBOR transition is a G20 priority, and the G20 in its February 2020 communique asked the FSB to identify remaining challenges to benchmark transition by July 2020 and to explore ways to address them. The FSB will publish a report on these issues later this month. FSB members, in collaboration with other standard-setting bodies and international institutions, will continue to monitor developments.

Notes to editors

The FSB set out in 2014 a series of recommendations for strengthening key interbank offered rates (IBORs) in the unsecured lending markets, and for promoting the development and adoption of alternative nearly risk-free reference rates, where appropriate. The FSB and member authorities, through the FSB Official Sector Steering Group (OSSG) chaired by Andrew Bailey (Governor, Bank of England) and John Williams (President and CEO, Federal Reserve Bank of New York), are working to implement and monitor these recommendations. The FSB published its most recent annual progress report in December 2019 on implementation of the recommendations.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

RCG for the Americas Working Group on Non-Bank Intermediation: Fifth Report

30 June 2020 | PDF full text (986 KB)

This report presents the results from the fifth non-bank financial intermediation (NBFI) monitoring exercise in the Americas published by the FSB Regional Consultative Group (RCG) for the Americas. The aim of this monitoring exercise is to assess the size, structure and trends of the NBFI sector in the region. This information is crucial in order to identify potential risks to financial stability at the jurisdiction level, as well as those arising from potential cross-border linkages.

The report concludes that total regional NBFI assets, reached over $127trn at end-2018, experiencing only minimal growth of 0.15% during 2018, which contrasts with an annualised growth of 5.6% for the period between 2012 and 2017.

The narrow measure, which is NBFI activities that may pose bank-like financial stability risks, reached $22.9trn at end-2018, up from $22.1trn at end-2017.

This document has been prepared by the FSB RCG for the Americas and is being published to disseminate information to the public. The views expressed in the document are those of the RCG for the Americas and do not necessarily reflect those of the FSB.

The FSB’s Global Monitoring Report on Non-Bank Financial Intermediation 2019 sets out more details for NBFI activities across the FSB’s membership.