FSB invites feedback on the effects of financial regulatory reforms on SME financing

25 February 2019

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Ref no: 4/2019

The Financial Stability Board (FSB) is seeking feedback from stakeholders for its evaluation of the effects of financial regulatory reforms on the provision of financing to small and medium-sized enterprises (SMEs). The evaluation forms part of a broader FSB examination of the effects of post-crisis reforms on financial intermediation. More details on the evaluation and a summary of the views expressed by some stakeholders can be found in the note with the key takeaways of a roundtable held by the FSB on this topic in December 2018.

As part of this evaluation, the FSB invites feedback from stakeholders including SMEs, financial institutions and trade associations on the following issues:

  1. What have been the main trends in SME financing (i.e. types of financing, volumes, prices and maturities) since the financial crisis? How do these trends differ across jurisdictions (e.g. advanced vs emerging market economies) and sectors (e.g. high-tech vs traditional firms), as well as by firm size (micro vs small vs medium-sized firms) and age (e.g. start-ups vs mature firms)?

  2. What have been the main drivers of the observed trends in SME financing in recent years? How do they differ across jurisdictions, sectors, size and age of firms?

  3. Have financial regulatory reforms such as Basel III affected bank financing to SMEs (e.g. in terms of loan volumes, prices, maturities and collateralisation)? If so, how? How important have been their effects vis-à-vis other types of bank lending and compared to the main drivers identified in question 2?

  4. How does the impact (if any) of financial regulatory reforms vary across banks operating in different geographies and with different size and business models?

  5. What other G20 financial reforms or other domestic financial regulations (if any) may have impacted financing to SMEs and how?

  6. Have financial reforms prompted a shift in the provision of SME financing, e.g. between banks and other financial institutions (substitution effects)? If so, how?

  7. Are there any other issues or relevant factors that should be considered as part of the evaluation?

Feedback, including evidence in support of the responses, should be submitted by 18 March 2019 to [email protected] under the subject heading “SME financing evaluation”. Responses will be published on the FSB’s website unless respondents expressly request otherwise. The feedback will be considered by the FSB as it prepares the draft report, which will be issued for public consultation ahead of the June 2019 G20 Summit. The final report, reflecting the feedback from the public consultation, will be published in October 2019.

Notes to editors

Following the global financial crisis, the G20 launched a comprehensive programme of financial reforms to increase the resilience of the global financial system, while preserving its open and integrated structure. With the main elements of the post-crisis reforms agreed and implementation underway, an analysis of the effects of these reforms is becoming possible. To that end, the FSB published in July 2017 a framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms.

One of the first two evaluations under the Framework is an examination of the effects of the G20 regulatory reforms on financial intermediation, which is chaired by Klaas Knot (President of De Nederlandsche Bank). The motivation for this evaluation stems from the need to better understand the effects of those reforms on the financing of real economic activity, and hence their contribution to the G20 objective of strong, sustainable, balanced and inclusive economic growth. The evaluation consists of two parts: the first part, published in November 2018, examined the effects of reforms on the financing of infrastructure investment. The second part involves an evaluation of the effects of reforms on the financing of SMEs.

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 for Supervision, 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.

Call for nominations: Appointment of academic advisors for the FSB evaluation of “too-big-to-fail” reforms

18 February 2019 | PDF full text (119 KB)

The Financial Stability Board (FSB) is taking forward the evaluation of financial reforms under its framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms. It will launch shortly an evaluation under the framework to examine the effects of too-big-to-fail (TBTF) reforms. This will be carried out by a working group of experts from FSB members, chaired by Claudia Buch, Vice-President of the Deutsche Bundesbank.

The evaluation will examine the extent to which TBTF reforms that have been implemented to date are achieving their intended objectives, and help identify any material unintended consequences that may have to be addressed, without compromising on the objectives of the reforms. Specifically, the evaluation will explore whether the reforms have: (i) addressed the systemic and moral hazard risks associated with systemically important banks; and (ii) analyse broader effects on the financial system, such as with respect to overall resilience, the orderly functioning of markets, global financial integration, or the cost and availability of financing.

The FSB seeks to appoint three academic subject matter experts from March 2019 until the evaluation’s completion in late 2020. These experts will support the TBTF evaluation team in the design of methodological approaches, data collection and use, empirical and other analyses of effects, and interpretation of the findings. This involves providing input on analytical issues, reviewing draft report write-ups and participating in team meetings and calls. It is envisaged that the total amount of work during this period will be around 20-25 days equivalent, with the bulk of it expected to take place between mid-2019 and mid-2020. The FSB will pay an honorarium commensurate to the time devoted to this role and cover associated travel expenses.

The selected academics should have demonstrated research knowledge and analytical expertise, including a strong publication record, in some or all of the following areas:

  • Empirical analysis of the effects of TBTF policies on banks (such as on implicit funding subsidies, bank behaviour and risk characteristics) and familiarity with the relevant literature, databases and econometric techniques.

  • Empirical analysis on the effects of financial regulations on financial system resilience (e.g. assessing systemic risk in the banking sector and cross-sectoral spillovers), global financial integration and cross-border spillovers, the functioning of markets, the provision of financing, and overall economic output and welfare.

  • Familiarity with international financial standards and the policy, legal or operational aspects of the regulation, supervision or resolution of systemically important banks.

Candidates for academic advisors are being solicited through this public call and from FSB members. The FSB will review candidates and select the academic advisors in March 2019.

Nominations (expressions of interest and a CV) should be submitted to the FSB at [email protected] with “Academic call – TBTF evaluation” in the subject line by 8 March 2019. For more information, please contact the FSB Secretariat ([email protected]; [email protected]).  

IIF Podcast: Dietrich Domanski

15 February 2019

FSB Secretary General Dietrich Domanski spoke with the Institute of International Finance about the FSB’s 2019 work programme including work on central counterparties, evaluating the effects of reforms, FinTech and efforts to further strengthen engagement with external stakeholders.

FSB report assesses FinTech developments and potential financial stability implications

14 February 2019

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Ref no: 3/2019

The Financial Stability Board (FSB) published a report today on FinTech and market structure in financial services. The publication is part of the FSB’s ongoing work to monitor FinTech market developments and their potential implications for financial stability. The FSB defines FinTech as technology-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on the provision of financial services.

Technological innovation holds great promise for the provision of financial services, with the potential to increase market access, the range of product offerings, and convenience while also lowering costs to clients. At the same time, new entrants into the financial services space, including FinTech firms and large, established technology companies (‘BigTech’), could materially alter the universe of financial services providers. Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient and resilient financial system. However, heightened competition could also put pressure on financial institutions’ profitability and this could lead to additional risk taking among incumbents in order to maintain margins. Moreover, there could be new implications for financial stability from BigTech in finance and greater third-party dependencies, e.g. in cloud computing services.

Some key considerations from the FSB’s analysis of the link between technological innovation and market structure are the following:

  • To date, the relationship between incumbent financial institutions and FinTech firms appears to be largely complementary and cooperative in nature.

  • The competitive impact of BigTech may be greater than that of FinTech firms. BigTech firms typically have large, established customer networks and enjoy name recognition and trust.

  • Reliance by financial institutions on third-party data service providers (e.g. data provision, cloud storage and analytics, and physical connectivity) for core operations is estimated to be low at present. However, this warrants ongoing attention from authorities.

Notes to editors

The digitalisation of finance has the potential to significantly change the current functioning of the global financial system, which raises a number of possible benefits and risks. The FSB is monitoring digitalisation trends, to assist in harnessing the benefits while mitigating risks. This includes analysis of the financial stability implications of technological innovation.

In this context, the FSB published in June 2017 a report on the Financial Stability Implications from FinTech. The report identified 10 areas that merited authorities’ attention, of which three were seen as priorities for international collaboration:

  • managing operational risk from third-party service providers;

  • mitigating cyber risks; and

  • monitoring macrofinancial risks that could emerge as FinTech activities increase.

This report follows up on these issues, providing further evidence on FinTech and resulting changes in market structure in the period since June 2017. As FinTech firms, BigTech firms, and the markets for third-party services continue to develop, it will be important to continue monitoring these developments and their financial stability implications. Further efforts on third-party dependencies are ongoing in the standard-setting bodies. The FSB Financial Innovation Network (FIN) is further exploring the market for third-party services for financial institutions, including how they manage lock-in risk and cross-border issues. Moreover, FIN is looking into the activities of BigTech in finance, including cross-border activities.

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, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

FinTech and market structure in financial services: Market developments and potential financial stability implications

| PDF full text (714 KB)

This report assesses FinTech market developments in the financial system and the potential implications for financial stability. The FSB defines FinTech as technology-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on the provision of financial services. 

Technological innovation holds great promise for the provision of financial services, with the potential to increase market access, the range of product offerings, and convenience while also lowering costs to clients. At the same time, new entrants into the financial services space, including FinTech firms and large, established technology companies (‘BigTech’), could materially alter the universe of financial services providers.  

Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient and resilient financial system. However, heightened competition could also put pressure on financial institutions’ profitability and this could lead to additional risk taking among incumbents in order to maintain margins. Moreover, there could be new implications for financial stability from BigTech in finance and greater third-party dependencies, e.g. in cloud services.  

Some key considerations from the FSB’s analysis of the link between technological innovation and market structure are the following: 

  • To date, the relationship between incumbent financial institutions and FinTech firms appears to be largely complementary and cooperative in nature. 

  • The competitive impact of BigTech may be greater than that of FinTech firms. BigTech firms typically have large, established customer networks and enjoy name recognition and trust. 

  • Reliance by financial institutions on third-party data service providers (e.g. data provision, cloud storage and analytics, and physical connectivity) for core operations is estimated to be low at present. However, this warrants ongoing attention from authorities.

FSB work programme for 2019

12 February 2019 | PDF full text (216 KB)

This work programme details the FSB’s planned work and an indicative timetable of main publications for 2019. It reflects the FSB’s continued pivot from policy design to the implementation and evaluation of the effects of reforms and, in particular, vigilant monitoring to identify and address new and emerging risks to financial stability.

  • Addressing new and emerging vulnerabilities in the financial system – Preserving financial stability, and thereby supporting sustainable growth, requires the continued monitoring of developments in the global financial system. The FSB will continue to scan the horizon to identify and assess emerging risks through regular discussion by its members of macro-financial developments, as well as through the biannual Early Warning Exercise conducted jointly with the International Monetary Fund. The FSB will also continue to assess the impact of evolving market structures and of technological innovation on global financial stability. This includes the resilience of financial markets in stress, the implications of the growth of non-bank financial intermediation and operational issues such as cyber risks.

  • Finalising and operationalising post-crisis reforms – G20 post-crisis financial reforms have delivered a safer, simpler and fairer financial system. To reinforce this progress, the FSB is working with standard-setting bodies (SSBs) to complete work on a few final issues in the main reform areas.

  • Implementation and evaluating the effects of the reforms – Implementation of the reforms is not complete and it remains uneven. It is critical to maintain momentum and avoid complacency, in order to achieve the goal of greater resilience. The FSB, in collaboration with SSBs, will continue work on implementation monitoring through regular progress reports and peer reviews.

  • Evaluating the effects of the reforms – The FSB will also take forward its programme to evaluate the effects of post-crisis reforms. The objective is to assess whether reforms are operating as intended in an efficient manner, and to identify and deliver adjustments where appropriate, without compromising on the agreed level of resilience.

FSB publishes its 2019 work programme

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 2/2019

The Financial Stability Board (FSB) today published for the first time its annual work programme. This describes the FSB’s planned work and an indicative timetable of main publications for 2019. It reflects the FSB’s continued pivot from post-crisis policy design to the implementation and evaluation of the effects of reforms and, in particular, vigilant monitoring to identify and address new and emerging risks to financial stability. It also describes new initiatives to reinforce stakeholder outreach.

Main areas of work during the year are:

  • Addressing new and emerging vulnerabilities in the financial system – Preserving financial stability, and thereby supporting sustainable growth, requires the continued monitoring of developments in the global financial system. The FSB will continue to scan the horizon to identify and assess emerging risks through regular discussion by its members of macro-financial developments, as well as through the biannual Early Warning Exercise conducted jointly with the International Monetary Fund. The FSB will also continue to assess the impact of evolving market structures and of technological innovation on global financial stability. This includes the resilience of financial markets in stress, the implications of the growth of non-bank financial intermediation and operational issues such as cyber risks.

  • Finalising and operationalising post-crisis reforms – G20 post-crisis financial reforms have delivered a safer, simpler and fairer financial system. To reinforce this progress, the FSB is working with standard-setting bodies (SSBs) to complete work on a few final issues in the main reform areas.

  • Implementation of reforms – Implementation of the reforms is not complete and it remains uneven. It is critical to maintain momentum and avoid complacency, in order to achieve the goal of greater resilience. The FSB, in collaboration with SSBs, will continue work on implementation monitoring through regular progress reports and peer reviews.

  • Evaluating the effects of the reforms. The FSB will also take forward its programme to evaluate the effects of post-crisis reforms. The objective is to assess whether reforms are operating as intended in an efficient manner, and to identify and deliver adjustments where appropriate, without compromising on the agreed level of resilience.

Notes to editors

The FSB Chair, Randal K. Quarles, gave a speech on 10 February, “Ideas of Order: Charting a Course for the Financial Stability Board”, setting out his view of how the work of the FSB must evolve, and some key principles that should inform that work.

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, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Public responses to consultation on Financial resources to support CCP resolution and the treatment of CCP equity in resolution

8 February 2019

On 15 November 2018, the FSB published a consultation document on proposed Financial resources to support CCP resolution and the treatment of CCP equity in resolution. Interested parties were invited to provide written comments by 1 February 2019. The public comments received are available below.

Responses received

The FSB thanks those who have taken the time and effort to express their views. The FSB expects to publish further guidance for public consultation in 2020.

Global Monitoring Report on Non-Bank Financial Intermediation 2018

4 February 2019 | PDF full text (3 MB)

The Global Monitoring Report on Non-Bank Financial Intermediation 2018 presents the results of the FSB’s annual monitoring exercise to assess global trends and risks from non-bank financial intermediation.

The annual monitoring exercise is part of the FSB’s policy work to enhance the resilience of non-bank financial intermediation. It focuses on those parts of non-bank financial intermediation that perform economic functions which may give rise to bank-like financial stability risks (i.e. the narrow measure of non-bank financial intermediation).

Monitoring aggregates at end-2017: Narrowing down

Section 1 introduces the FSB’s monitoring approach, including its scope, data, and terminology. It also describes recent innovations in non-bank financial intermediation.

Section 2 provides an overview of the size and growth of all sectors in the financial system. Among them, “Other Financial Intermediaries” (OFIs) aggregate, which includes all financial institutions that are not central banks, banks, insurance corporations, pension funds, public financial institutions or financial auxiliaries, grew by 7.6% in 2017 OFIs’ growth exceeded that of banks, insurance corporations and pension funds. With $116.6 trillion, OFI assets represent 30.5% of total global financial assets, the largest share on record. Among the OFI sub-sectors, in 2017 structured finance vehicles grew for the first time since the 2007-09 global financial crisis.

Section 3 assesses the interconnectedness between non-bank financial entities and banks and among non-bank financial entities and cross-border linkages. In aggregate, banks and OFIs have become marginally more interconnected through credit and funding relationships in 2017, at levels similar to 2003-06. Investment funds and money market funds are the largest OFI sub-sectors that provide credit to banks.

Interconnectedness among sectors: aggregate linkages among sectors

Section 4 focuses on those parts of non-bank financial intermediation where bank-like financial stability risks may arise. The narrow measure of non-bank financial intermediation, which reflects an activity-based “economic function” assessment of risks, grew by 8.5% to $51.6 trillion in 2017, at a slightly slower pace than 2011-16. Since 2011, the Cayman Islands, China, Ireland and Luxembourg together have accounted for over two-thirds of the dollar value increase. The narrow measure represents 14% of total global financial assets. Key components include:

  • Collective investment vehicles (CIVs) with features that make them susceptible to runs continued to drive the overall growth of the narrow measure in 2017. They grew by 9.1%, a somewhat slower pace than annual growth during 2011-16 (13.2%). Together, CIV assets represent 71% of the narrow measure. The CIVs included in the narrow measure invest mostly in credit assets and are involved in liquidity transformation.

  • Non-bank financial entities engaging in loan provision that is dependent on short-term funding grew by 6% in 2017, and account for 7% of the narrow measure. This category largely consists of finance companies, which were found to employ some degree of leverage, and in some jurisdictions, a high degree of maturity transformation. Finance companies in a few jurisdictions also displayed high liquidity risk.

  • Market intermediaries that depend on short-term funding or secured funding of client assets grew by 5%, and make up 8% of the narrow measure. Broker-dealers constitute the largest entity type in this category. Reflecting their business models, broker-dealers in some jurisdictions continue to employ significant leverage, although it is considered to be lower than the level seen prior to the 2007-09 global financial crisis.

  • Securitisation-based credit intermediation increased by 9% in 2017, to account for 10% of the narrow measure, primarily driven by growth in trust company assets and securitisations.

Moving from MUNFI to the narrow measure: 29-Group at end-2017

Section 5 features case studies that discuss various aspects of non-bank financial entities and activities in greater detail, including: (i) FinTech credit; (ii) recent developments in the leveraged loan markets and the role of non-bank financial intermediaries; (iii) the non-bank credit cycle; (iv) cross-border movements of non-bank financial intermediation systems; and (v) the use of credit default swaps by non-bank financial institutions in the European Union.

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