FSB report sets out need to reduce risks to financial stability from LIBOR transition

18 December 2019

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Ref no: 48/2019

The Financial Stability Board (FSB) today published its annual progress report on implementation of recommendations to reform major interest rate benchmarks. The report emphasises that the continued reliance of global financial markets on LIBOR poses risks to financial stability and it calls for significant and sustained efforts by the official sector and by financial and non-financial firms across many jurisdictions to transition away from LIBOR by end-2021.

Interest rate benchmarks play a key role in global financial markets. In 2014 the FSB made recommendations to reform interbank offered rates (IBORs) in response both to cases of attempted manipulation and to the decline in liquidity in key interbank unsecured funding markets.

The report sets out progress on implementing the FSB recommendations and finds that:

  • There is a common view across FSB jurisdictions that the use of overnight risk-free rates should be encouraged across global interest rates markets where appropriate, and that contracts referencing IBORs should have robust fallbacks.
  • There has been good progress in many derivatives and securities markets, but transition in lending markets has been slower, and needs to accelerate.
  • Firms undertaking their transition away from LIBOR should not delay their programmes until the emergence of possible forward-looking term versions of risk-free rates.
  • The parallel efforts on transition across multiple jurisdictions and currencies are an opportunity to align conventions and other practices across currencies and products.
  • Transition requires significant commitment from the official sector, working alongside market participants.
  • Given the degree of risk arising from the continued reliance on LIBOR, regulated firms should expect increasing scrutiny of their transition efforts as the end of 2021 approaches

Andrew Bailey and John Williams, co-chairs of the FSB Official Sector Steering Group, said: “FSB members are committed to transitioning to more robust financial benchmarks. It is essential that both firms and national authorities around the world take steps now to ensure a smooth transition. As a matter of priority, authorities should discuss with financial institutions, and financial institutions with their clients, the transition process and agree on the steps needed.”

The FSB announced on 17 December, as part of its 2020 work programme, that it will conduct a survey of exposures to LIBOR and supervisory measures being taken to address benchmark transition issues, in order to improve collective understanding of LIBOR transition progress so far and to increase awareness of the importance of ensuring timely transition.

The FSB will deliver to G20 Finance Ministers and Central Bank Governors in July 2020, and publish, a report on remaining challenges to benchmark transition.

Notes to editors

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

Reforming major interest rate benchmarks: Progress report

| PDF full text (649 KB)

This annual progress report on the transition to more robust financial benchmarks, emphasises that the continued reliance of global financial markets on LIBOR poses risks to financial stability and it calls for significant and sustained efforts by the official sector and by financial and non-financial firms across many jurisdictions to transition away from LIBOR by end-2021.

Interest rate benchmarks play a key role in global financial markets. In 2014 the FSB made recommendations to reform interbank offered rates (IBORs) in response both to cases of attempted manipulation and to the decline in liquidity in key interbank unsecured funding markets.

The report sets out progress on implementing the FSB recommendations and finds that:

  • There is a common view across FSB jurisdictions that the use of overnight risk-free rates should be encouraged across global interest rates markets where appropriate, and that contracts referencing IBORs should have robust fallbacks.
  • There has been good progress in many derivatives and securities markets, but transition in lending markets has been slower, and needs to accelerate.
  • Firms undertaking their transition away from LIBOR should not delay their programmes until the emergence of possible forward-looking term versions of risk-free rates.
  • The parallel efforts on transition across multiple jurisdictions and currencies are an opportunity to align conventions and other practices across currencies and products.
  • Transition requires significant commitment from the official sector, working alongside market participants.
  • Given the degree of risk arising from the continued reliance on LIBOR, regulated firms should expect increasing scrutiny of their transition efforts as the end of 2021 approaches

The FSB announced on 17 December, as part of its 2020 work programme, that it will conduct a survey of exposures to LIBOR and supervisory measures being taken to address benchmark transition issues, in order to improve collective understanding of LIBOR transition progress so far and to increase awareness of the importance of ensuring timely transition.

The FSB will deliver to G20 Finance Ministers and Central Bank Governors in July 2020, and publish, a report on remaining challenges to benchmark transition.

FSB work programme for 2020

17 December 2019 | PDF full text (218 KB)

This work programme details the FSB’s planned work and an indicative timetable of main publications for 2020. The FSB’s work priorities for 2020 reflect the evolving nature of the global financial system and associated risks to financial stability. The FSB will reinforce its forward-looking monitoring of developments to identify, assess and address new and emerging vulnerabilities. At the same time, the FSB will continue its work to finalise and operationalise the remaining elements of post-crisis reforms; monitor and assess the implementation of reforms; and evaluate their effects in order to ensure that reforms work as intended.

Important specific FSB work programme items, which include key deliverables to the G20 Saudi Arabian Presidency, are:

  • FinTech. The FSB will continue to monitor financial innovation developments and assess their potential implications for financial stability. Complementing the recent report on BigTech in finance, the FSB will report on the perspective of emerging market and developing economies on this topic. The FSB will also take stock of the range of practices on the use of RegTech and SupTech.

  • Global stablecoins. The introduction of so-called global “stablecoins” could pose a host of challenges to the regulatory community, including for financial stability. At the same time, it could bring benefits to the financial system and wider economy. The FSB will issue a public consultation on addressing regulatory issues of stablecoins in April.

  • Cross-border payment systems. Payment systems are a central pillar of the global financial system and economy. Digital innovation could improve the efficiency and inclusiveness of cross-border payment services, which are often considered to be slow and costly. In coordination with the Committee on Payments and Market Infrastructures and other relevant international organisations and standard-setting bodies, the FSB will develop and deliver to the G20 a roadmap for how to enhance global cross-border payments.

  • Interest rate benchmarks. Continued reliance of global financial markets on LIBOR poses risks to financial stability. Transition away from LIBOR by end-2021 requires significant commitment and sustained effort from both financial and non-financial firms across many jurisdictions. To improve understanding and increase awareness of the importance of ensuring timely transition, the FSB will take stock of the implementation of benchmark reforms and report on remaining challenges to benchmark transition.

  • Ongoing evaluation work. The FSB will take forward its multi-year programme for evaluating the effects of reforms under its Evaluation Framework. In 2020, this includes the completion of an evaluation of the effects of TBTF reforms for banks and the launch of an evaluation of the effects of money market fund reforms.

FSB sets out 2020 work programme

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 47/2019

The Financial Stability Board (FSB) today published its work programme for 2020. The FSB’s work priorities for 2020 reflect the evolving nature of the global financial system and associated risks to financial stability. The FSB will reinforce its forward-looking monitoring of developments to identify, assess and address new and emerging vulnerabilities. At the same time, the FSB will continue its work to finalise and operationalise the remaining elements of post-crisis reforms; monitor and assess the implementation of reforms; and evaluate their effects in order to ensure that reforms work as intended.

Important specific FSB work programme items, which include key deliverables to the G20 Saudi Arabian Presidency, are:

  • FinTech. The FSB will continue to monitor financial innovation developments and assess their potential implications for financial stability. Complementing the recent report on BigTech in finance, the FSB will report on the perspective of emerging market and developing economies on this topic. The FSB will also take stock of the range of practices on the use of RegTech and SupTech.

  • Global stablecoins. The introduction of so-called global “stablecoins” could pose a host of challenges to the regulatory community, including for financial stability. At the same time, it could bring benefits to the financial system and wider economy. The FSB will issue a public consultation on addressing regulatory issues of stablecoins in April.

  • Cross-border payment systems. Payment systems are a central pillar of the global financial system and economy. Digital innovation could improve the efficiency and inclusiveness of cross-border payment services, which are often considered to be slow and costly. In coordination with the Committee on Payments and Market Infrastructures and other relevant international organisations and standard-setting bodies, the FSB will develop and deliver to the G20 a roadmap for how to enhance global cross-border payments.

  • Interest rate benchmarks. Continued reliance of global financial markets on LIBOR poses risks to financial stability. Transition away from LIBOR by end-2021 requires significant commitment and sustained effort from both financial and non-financial firms across many jurisdictions. To improve understanding and increase awareness of the importance of ensuring timely transition, the FSB will take stock of the implementation of benchmark reforms and report on remaining challenges to benchmark transition..

  • Ongoing evaluation work. The FSB will take forward its multi-year programme for evaluating the effects of reforms under its Evaluation Framework. In 2020, this includes the completion of an evaluation of the effects of TBTF reforms for banks and the launch of an evaluation of the effects of money market fund reforms.

Notes to editors

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

Consolidated Basel Framework – scope and definitions (SCO)

15 December 2019

Last updated: December 2022

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This framework will be applied on a consolidated basis to internationally active banks. Consolidated supervision is the best means to provide supervisors with a comprehensive view of risks and to reduce opportunities for regulatory arbitrage.

The scope of application of the framework will include, on a fully consolidated basis, any holding company that is the parent entity within a banking group to ensure that it captures the risk of the whole banking group.

Consolidated Basel Framework – definition of capital (CAP)

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This standard describes the criteria that bank capital instruments must meet to be eligible to satisfy the Basel capital requirements, as well as necessary regulatory adjustments and transitional arrangements.

Three categories of instruments are permitted, each governed by a single set of criteria that instruments are required to meet before inclusion in the relevant category. These are common Equity Tier 1 (going-concern capital), additional Tier 1 (going-concern capital) and tier 2 Capital (gone-concern capital). Total regulatory capital is the sum of Common Equity Tier 1, Additional Tier 1 and Tier 2 capital, net of regulatory adjustments.

Consolidated Basel Framework – calculation of RWA for operational risk (OPE)

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This standard describes how to calculate capital requirements for operational risk. The framework outlined in this standard presents three methods for calculating operational risk capital requirements in a continuum of increasing sophistication and risk sensitivity, viz., the Basic Indicator Approach, the Standardised Approach and Advanced Measurement Approaches (AMAs).

Consolidated Basel Framework – liquidity coverage ratio (LCR)

Last updated: December 2022

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This standard describes the Liquidity Coverage Ratio, a measure which promotes the short-term resilience of a bank’s liquidity risk profile.

The LCR standard and monitoring tools should be applied to all internationally active banks on a consolidated basis, but may be used for other banks and on any subset of entities of internationally active banks as well to ensure greater consistency and a level playing field between domestic and cross-border banks. The LCR standard and monitoring tools should be applied consistently wherever they are applied.