Assessing the Effects of Reforms
With the main elements of the post-crisis reforms agreed and implementation underway, more detailed analysis of the effects of those reforms is becoming possible. The FSB, in collaboration with the standard-setting bodies (SSBs), is conducting evaluations of the analysis of the effects of reforms, including whether the reforms are working together as intended.
Framework for post-implementation evaluation of the effects of reforms
The FSB, in close collaboration with the SSBs, and informed by work carried out by its members and other stakeholders, developed a framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms. The framework guides analyses of whether the G20 reforms are achieving their intended outcomes, and helps identify any material unintended consequences that may have to be addressed, without compromising on the objectives of the reforms. Applying such a framework informs structured policy discussions among the FSB and SSBs.
The focus of the framework is on evaluations of the effects of G20 financial regulatory reforms for which implementation is well underway or completed. The framework:
- Clarifies relevant concepts and terms, with the aim of achieving a common understanding by FSB members and relevant stakeholders;
- Outlines approaches, including evaluation tools, to address the methodological challenges inherent in policy evaluations; and
- Lays out the process for operationalising evaluations.
The framework is a living document that will be enhanced as experience is gained with evaluations. The FSB also published a Technical Appendix and Frequently Asked Questions when the framework was published.
Effects of reforms on securitisation
The evaluation aims to assess the extent to which the G20 reforms on securitisation implemented to date have achieved their financial stability objectives. Specifically, the evaluation will assess whether the reforms have addressed misaligned incentives that weakened lending standards in the credit origination process, as well as opaque and complex structures that prevented proper due diligence and led to the mispricing of risks by investors. The evaluation will also examine broader effects (positive or negative) of the reforms on the functioning and structure of the securitisation markets and the implications for financing to the real economy. This type of analysis will help identify any material unintended consequences that may have to be addressed, without compromising on the objectives of the reforms.
Effects of too-big-to-fail reforms for banks
Completed March 2021
The evaluation examines the extent to which too-big-to-fail reforms for systemically important banks are achieving their objectives. The reforms being evaluated have three components: (i) standards for additional loss absorbency through capital surcharges and total loss-absorbing capacity requirements; (ii) recommendations for enhanced supervision and heightened supervisory expectations; and (iii) policies to put in place effective resolution regimes and resolution planning to improve the resolvability of banks. The evaluation finds that (i) the TBTF reforms have made banks more resilient; (ii) good progress has been made towards making banks resolvable; and the benefits of the reforms significantly outweigh the costs. However, there are still gaps that need to be addressed.
Effects of reforms on small and medium-sized enterprise (SME)
Completed November 2019
For the reforms in scope, the evaluation found no material and persistent negative effects on small and medium-sized enterprise (SME) financing in general, although there is some differentiation across jurisdictions. There is some evidence that the more stringent risk-based capital requirements under Basel III slowed the pace and in some jurisdictions tightened the conditions of SME lending at those banks that were least capitalised ex ante relative to other banks. These effects are not homogeneous across jurisdictions and they are generally found to be temporary. The evaluation also provides some evidence for a reallocation of bank lending towards more creditworthy firms after the introduction of reforms, but this effect is not specific to SMEs.
Effects of reforms on incentives to centrally clear OTC derivatives
Completed November 2018
The evaluation suggests that, overall, the relevant post-crisis reforms – in particular the capital, margin and clearing reforms – are achieving their goals of promoting central clearing, especially for the most systemic market participants. This is consistent with the goal of reducing complexity and improving transparency and standardisation in the OTC derivatives markets. Beyond the systemic core of the derivatives network of central counterparties, dealers/clearing service providers and larger, more active clients, the incentives are less strong. The evaluation suggests that the treatment of initial margin in the leverage ratio can be a disincentive for banks to offer or expand client clearing services. Bearing in mind the original objectives of the reform, additional analysis would be useful to further assess these effects.
Effects of reforms on infrastructure finance
Completed November 2018
The evaluation forms part of a broader FSB examination of the effects of reforms on financial intermediation. It focuses on infrastructure finance that is provided in the form of corporate and project debt financing (loans and bonds), for which the financial regulatory reforms are of most immediate relevance. The report concludes that the effect of the G20 reforms on infrastructure finance has been of a second order relative to factors such as the macro-financial environment, government policy and institutional factors. In particular, for the reforms that have been largely implemented and are most relevant for this evaluation – namely, the initial Basel III capital and liquidity requirements (agreed in 2010) and over-the-counter derivatives reforms – the analysis does not identify material negative effects on the provision and cost of infrastructure finance to date.
