FSB published an article by the Secretary General Dietrich Domanski on achieving the G20 goal of resilient market-based finance. This article considers factors that contributed to the crisis, explores the significant reforms that have changed the financial system for the better, identifies emerging risks that authorities need to consider, and explores how macro-prudential policies can address these risks.
The article adds that FSB members have agreed to take additional steps to strengthen shadow banking monitoring to facilitate better assessment of risks, concentrations and cross‑border interconnectedness. Specifically, authorities are seeking to: improve data granularity on assets and liabilities as well as on cross‑border interconnectedness; supplement flow of funds data with supervisory and/or commercially‑available data to assess risks; and improve information‑sharing on emerging risks. In addition, the authorities are seeking to strengthen system‑wide oversight. This includes:
- Establishing a systematic process for assessing shadow banking risks and ensuring that any entities or activities that could pose material financial stability risks are brought within the regulatory perimeter
- Addressing identified gaps in risk‑related data
- Removing impediments to cooperation and information‑sharing between authorities
The article concludes that, as the financial system evolves, so do systemic risks. Policymakers need to constantly assess risks across the financial system and consider whether supervisors have sufficient tools to address emerging risks. Well‑designed monitoring and effective regulation and supervision support the identification of risks, along with their proper pricing and management in a way that preserves the benefits of diverse forms of financial intermediation. A clear macro-prudential approach will be the key to ensuring that market‑based finance continues to meet the needs of society.
Related Link: Article (PDF)
Keywords: International, Banking, Shadow Banking, G20, Financial Stability, Cross Border Cooperation, Market-Based Finance, Macro-Prudential Policy, FSB