FSB takes steps to enhance the effectiveness of its Regional Consultative Groups

4 February 2020

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Ref no: 2/2020

The Financial Stability Board (FSB), as part of its work to reinforce engagement with stakeholders, has completed a review of how to enhance the effectiveness of its six Regional Consultative Groups (RCGs) as an outreach and feedback mechanism. Through the RCGs, the FSB engages with approximately 70 jurisdictions beyond its membership. Typically, each RCG meets twice a year to exchange views on the vulnerabilities affecting financial systems and on the FSB’s ongoing and planned initiatives to promote financial stability.

The review was conducted by a working group comprised of FSB and non-FSB members from each of the six RCGs, and was co-chaired by Carolyn Wilkins, Senior Deputy Governor of the Bank of Canada and Moses Pelaelo, Governor of the Bank of Botswana.

The review found that both FSB and non-FSB members value the RCGs as an important mechanism to exchange views on a wide range of financial stability issues and the implications for their region. While other types of regional groups exist, few bring together the prudential authorities, market regulators and finance ministries to discuss topics of common interest in the way that RCGs do.

The FSB and RCGs agreed a set of actions to encourage greater input from non-FSB member authorities into the FSB’s work and to further strengthen the effectiveness of RCG meetings. These actions include: involving RCG members in the FSB’s work at an early stage, for instance through their participation in FSB working groups, surveys and workshops; facilitating RCG Co-Chairs’ ability to contribute to FSB Plenary discussions by providing perspectives on regional vulnerabilities, implementation of relevant supervisory and regulatory FSB policies and any impact of such reforms on their region; and further enhancing the focus in RCG meetings on matters of regional and cross-sectoral interest.

In addition, the FSB agreed to continue to hold its Emerging Market and Developing Economies (EMDEs) Forum (which was last held in 2017) on an annual basis as part of FSB Plenary meetings. The EMDEs Forum focuses on issues of particular interest to emerging markets and developing economies and of common interest across RCGs. On a pilot basis, the FSB will also organise a conference to which all FSB and RCG members are invited, and for which FSB and RCG members would be asked to propose topics for the agenda.

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.

In 2011, the FSB established six RCGs, one each for the Americas, Asia, Commonwealth of Independent States, Europe, Middle East and North Africa, and Sub-Saharan Africa region, to expand upon and formalise the FSB’s outreach activities.

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.

Correspondence with ISDA on pre-cessation triggers

30 January 2020 | PDF full text (98 KB)

In November 2019 the Co-Chairs of the FSB’s Official Sector Steering Group (OSSG) wrote to the International Swaps and Derivatives Association (ISDA) to encourage it to add a “pre-cessation” trigger alongside the cessation trigger as standard language in the definitions for new derivatives and in a single protocol without embedded optionality, for outstanding derivative contracts referencing key Interbank Offered Rates (IBORs). This would help to reduce systemic risk and market fragmentation by ensuring that as much of the swaps market as possible falls back to alternative rates in a coordinated fashion.

In December 2019 ISDA responded to the letter from the OSSG Co-Chairs. ISDA asked, amongst other things, for a statement from the UK’s Financial Conduct Authority (FCA) and the ICE Benchmark Administration that the “reasonable period” during which a “non-representative” LIBOR would be published would be minimal (i.e., a number of months not years) after the FCA announces that LIBOR is no longer representative. This letter sets out the FCA’s response to describe the laws relevant to this situation and provide clarity on how the FCA intends to apply them. ISDA also received a response to its letter from ICE Benchmark Administration and the London Clearing House has announced a rulebook consultation process regarding the inclusion of an automatic trigger.

In December 2019 the FSB 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 before end-2021.

Global Monitoring Report on Non-Bank Financial Intermediation 2019

19 January 2020 | PDF full text (928 KB)

The Global Monitoring Report on Non-Bank Financial Intermediation 2019 presents the results of the FSB’s annual monitoring exercise to assess global trends and risks from non-bank financial intermediation (NBFI).

FSB NBFI Report 2019 - Exhibit 0-1

The annual monitoring exercise is part of the FSB’s strategy to enhance the resilience of NBFI. The exercise compares the size and trends of financial sectors in aggregate and across jurisdictions. The FSB focuses particularly on those parts of NBFI that may pose bank-like financial stability risks and/or regulatory arbitrage.

Section 1 introduces the FSB’s monitoring approach, including the scope, data, and terminology. It also describes recent innovations in NBFI. The 2019 report covers data up to end-2018 from 29 jurisdictions, which together represent over 80% of global GDP.

Section 2 provides an overview of the size and growth of all sectors in the financial system. Total global financial assets grew by 1.4% in 2018, driven largely by banks. Within MUNFI (Monitoring Universe of Non-Bank Financial Intermediation) assets of insurance corporations and pension funds remained largely unchanged, while those of OFIs (Other Financial Intermediaries) declined marginally as a result of stock market declines in late 2018 and, to a lesser extent, outflows from some of these entities.

NBFI as a share of total financial assets

In 2018, lending assets of OFIs, which comprise all financial institutions that are not central banks, banks, insurance corporations, pension funds, public financial institutions or financial auxiliaries grew by 3.0%, largely driven by the euro area. In comparison, bank loans grew by 5.9%. Repo assets and liabilities of OFIs increased in 2018, with the net repo position remaining largely unchanged. Growth in repo assets of banks exceeded that of repo liabilities.

Section 3 assesses the interconnectedness among financial entities, both within and across borders. Interconnectedness between banks and OFIs through credit and funding relationships has remained largely unchanged since 2016, after declining from its 2009 levels. Investment funds and money market funds remain the largest OFI sub-sectors that provide credit to banks.

Section 4 focuses on those parts of NBFI where bank-like financial stability risks may arise. This narrow measure of NBFI grew by 1.7%, to $50.9 trillion in 2018, compared to an average annual growth rate of 8.5% from 2012 to17. It now represents 13.6% of total global financial assets. The narrow measure, which reflects an activity-based “economic function” (EF) assessment of risks, includes the following elements:

Narrowing down from MUNFI: 29 jurisdictions at end-2018, in USD trillion

The narrow measure, which reflects an activity-based “economic function” (EF) assessment of risks, includes the following elements:

  • Collective investment vehicles (CIVs) with features that make them susceptible to runs (EF1) grew by 0.4% in 2018, much less than the 11.0% average annual growth rate from 2012 to 2017. CIVs represent 72.0% of the narrow measure. Two of the largest EF1 entity types, money market funds and fixed income funds, invest primarily in credit assets and engage in liquidity and maturity transformation.
  • Non-bank financial entities engaging in loan provision that is dependent on short-term funding (EF2) grew by 6.9% in 2018, representing 7.0% of the narrow measure. Finance companies, the entity type most commonly classified into EF2, displayed a somewhat elevated degree of leverage, but have moderate maturity transformation in most jurisdictions.
  • Market intermediaries that depend on short-term funding or secured funding of client assets (EF3) grew by 8.7% in 2018, representing 8.8% of the narrow measure. Broker-dealers that are not prudentially consolidated into banking groups constitute the largest EF3 entity type; they employ significant leverage, particularly when accounting for off-balance sheet exposures. Broker-dealer leverage increased modestly in 2018 in most jurisdictions. In aggregate, it remains lower than the levels seen in the lead up to the financial crisis.Evolution of the narrow measure by economic function
  • Entities involved in the facilitation of credit creation (EF4) grew by 5.0% in 2018. The size of these entities, which represent less than 1% of the narrow measure, may be significantly understated due to the difficulty in capturing off-balance sheet exposures. Assets of investment funds involved in credit derivatives have increased in recent years, and accounted for the biggest share of EF4 assets in 2018.
  • The nominal value of entities engaged in securitisation-based credit intermediation (EF5), such as securitisation vehicles, remained largely unchanged in 2018, representing 9.3% of the narrow measure. Assets of structured finance vehicles, which include collateralised loan obligations, grew by 9.7%, continuing the growth seen in 2017. However, this growth was offset by a decrease in the assets of Chinese trust companies, which fell by 21.7%.

Section 5 features case studies that discuss different aspects of NBFI in greater detail, including: (i) flow and valuation effects in the investment fund sector; (ii) the role of non-bank financial institutions in providing financing to commercial real estate; and (iii) the role of investment funds in cross-border capital flows.

Datasets from the report are publicly available for use in accordance with to the FSB’s normal terms and conditions.

FSB publishes annual report on non-bank financial intermediation

Press enquiries:
+41 61 280 8138
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Ref no: 1/2020

The Financial Stability Board (FSB) today published the Global Monitoring Report on Non-Bank Financial Intermediation 2019. The report presents the results of the FSB’s annual monitoring exercise to assess global trends and risks from non-bank financial intermediation (NBFI).

The annual monitoring exercise is an important part of the FSB’s policy framework to enhance the resilience of NBFI. It covers data up to end-2018 from 29 jurisdictions, which together represent over 80% of global GDP. The FSB focuses particularly on those parts of NBFI that may pose bank-like financial stability risks and/or regulatory arbitrage (i.e. the narrow measure of NBFI).

Main findings from the 2019 monitoring exercise include:

  • Total global financial assets grew by 1.4% to $378.9 trillion in 2018, driven largely by banks. Assets of insurance corporations and pension funds remained largely unchanged, while those of Other Financial Intermediaries (OFIs)1 declined marginally as a result of stock market declines in late 2018 and, to a lesser extent, outflows from some of these entities.

  • The narrow measure of NBFI grew by 1.7%, to $50.9 trillion in 2018, significantly slower than the 2012-17 average annual growth rate of 8.5%. It now represents 13.6% of total global financial assets. Collective investment vehicles with features that make them susceptible to runs grew by 0.4% in 2018, much slower than the 11% average annual growth rate from 2012-17. At the end of 2018, such collective investment vehicles represented 72% of the narrow measure.

  • Lending by OFIs has continued to grow. OFI lending assets grew by 3.0% in 2018, largely driven by the euro area.

  • Interconnectedness between banks and OFIs through credit and funding relationships has been largely unchanged since 2016. Investment funds and money market funds remain the largest OFI providers of credit to banks.

Klaas Knot, Chair of the FSB Standing Committee on Assessment of Vulnerabilities, said: “Non-banks play an increasingly important role in the global financial system. The FSB’s monitoring report provides a significant resource for authorities to assess trends and risks from NBFI. Such information is essential for a forward-looking, system-wide oversight framework.”

Notes to editors

In response to a G20 Leaders’ request at the Seoul Summit in 2010, the FSB adopted a two-pronged strategy to address financial stability risks in NBFI (previously called shadow banking). First, it created a system-wide monitoring framework to track developments in NBFI with a view to identifying the build-up of systemic risks and initiating corrective actions where necessary. Second, it has been coordinating and contributing to the development of policies to mitigate potential systemic risks associated with NBFI.

The FSB will continue to monitor and assess developments to ensure that non-bank financing is resilient. As noted in its work programme for 2020, the FSB will further strengthen its annual NBFI monitoring exercise and data framework to assess the evolution of risks from NBFI developments globally. It will also review the organisation of its work on NBFI this year.

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.

Press release available as: PDF
  1. OFIs includes all financial institutions that are not central banks, banks, insurance corporations, pension funds, public financial institutions or financial auxiliaries. [←]

2019 Underlying data for exhibits

16 January 2020

2019 Monitoring Dataset

2019 Reporting templates

Clock Synchronisation

View the Standard

Accurate and precise time stamps can help regulators reconstruct past events, which may occur on different markets or in different jurisdictions. Regulatory authorities can better use time stamps from synchronised clocks to more effectively monitor and identify instances of potential market abuse and analyse market events for regulatory purposes. Therefore, IOSCO believes that member jurisdictions would likely benefit from establishing a common expectation with respect to timestamping and clock synchronisation for the purposes of recording trade and related events.

Given the heterogeneity of the markets across member jurisdictions, each market authority is best placed to determine an acceptable level of accuracy and granularity of the timestamp in their jurisdiction. However, IOSCO recommends that member jurisdictions use UTC as the standard reference time source to the extent that they have adopted or are considering adopting requirements on clock synchronisation. In jurisdictions with clock synchronisation requirements for trading venues and their participants, setting out a reference time is important in clarifying the timestamping requirement on reportable events. This may be achieved in various ways as jurisdictions have different regulatory frameworks and approaches, and not all regulators require time stamping by registered entities and so do not necessarily require a regulatory change.

Financial Soundness Indicators Compilation Guide (2019 FSIs Guide)

27 December 2019

View the Standard

The purpose of this Manual is to facilitate the compilation and cross-country comparability of FSIs to assist users in their macroprudential financial surveillance of the financial system. It incorporates changes in international regulatory standards embodied in the Basel III reform – including new definitions and measures of capital and new global liquidity standards,  as well as revisions to the International Financial Reporting Standards, while providing practical advice on compilation issues, which are relevant for macroprudential policy and financial stability analysis.

Solvent Wind-down of Derivatives and Trading Portfolios: Overview of responses to the consultation

20 December 2019 | PDF full text (146 KB)

On 3 June 2019, the FSB published a consultative document on Solvent Wind-down of Derivatives and Trading Portfolios. The note summarises the responses to the public consultation and provides an overview of the responses to those comments.

After carefully considering these comments and the fact that many capabilities necessary to support the preparation and execution of solvent wind-down are not specific to solvent wind-down planning, the FSB has decided not to develop further guidance at this stage. Since solvent wind-down planning is an integral part of resolution planning, it needs to be consistent with a firm’s resolution strategy and plan. The FSB will therefore continue to promote solvent wind-down planning as part of overall resolution planning.