FSB published a letter, from its Chair Randal K. Quarles, which sets out a number of focus areas for FSB to maintain financial stability during the COVID-19 pandemic. The letter emphasizes the importance of continuation of work to strengthen the global financial system, including evaluating financial post-crisis financial reforms, supporting a smooth transition away from LIBOR, and developing a roadmap to improve cross-border payments. FSB also released a report on the financial stability implications of, and policy measures taken in response to, the COVID-19 pandemic. The letter and the report have been delivered to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on July 18, 2020.
In the letter, FSB Chair notes that the swift intervention of FSB members in response to COVID-19 pandemic has helped to stabilize markets, but the path of recovery is still uncertain. The letter sets out a number of focus areas for FSB during the COVID-19 pandemic:
- Assessing vulnerabilities during the current crisis. Volatility in markets has decreased but may well return. FSB has identified a number of priority areas that require further analysis, including risks related to liquidity stress, debt burden of non-financial corporates, and effects of credit rating downgrades. The FSB monitoring provides essential and near real-time input for policymakers to anticipate and address developing risks in the financial system.
- Reinforcing resilient non-bank financial intermediation. Understanding risk, risk transmission, and policy implications for the non-bank financial intermediation sector is more important than ever. By the G20 Summit this November, FSB will holistically review the market turmoil in March. Additionally, FSB has begun a mapping of the critical connections between the banking and non-banking sectors. This combined work will inform the future steps of FSB in 2021 under the Italian G20 Presidency to improve the resiliency of the non-bank financial intermediation sector while preserving its benefits.
- Identifying and assessing policy responses. The decisive immediate policy response has laid the ground for effectively containing the economic and financial fallout of the COVID-19 pandemic. FSB has been sharing information on policy responses and is identifying indicators to help assess the efficacy of policy actions. FSB will also help coordinate supervisory and regulatory actions, including to take account of cross-border spillovers and promote a level playing field.
- Monitoring consistency with standards. Reflecting its commitment to the agreed financial reforms, FSB has compiled, in cooperation with the standard-setting bodies, the COVID-19 actions taken by FSB members. This work evaluates the consistency of the member actions with agreed-upon financial reforms and the extent to which the actions have used the flexibility within international standards.
- Using flexibility in standards and buffer use. Most measures taken by FSB members have used the flexibility built into international standards, including regarding the use of capital and liquidity buffers. FSB supports the BCBS statement setting out that a measured draw-down of buffers is both expected and appropriate during the current period of stress.
The report to the G20 details COVID-related financial stability developments, policy measures taken, and work to assess the effectiveness of these measures. It draws on the significant FSB work undertaken to assess vulnerabilities, consider policy responses under different recovery scenarios, and note where additional work may be necessary. The report mentions that authorities’ experiences to date suggest common elements in the policy approach that may support the effectiveness of policies. These include:
- Ongoing monitoring and information collection to support effective crisis management, which depends on reliable and timely information in a rapidly evolving environment
- Use of stress tests and scenario analysis, to provide policymakers with an understanding of how a range of economic recovery scenarios may affect financial resilience
- A forward-looking supervisory approach in light of likely changing circumstances
- Clear communication of policy measures and supervisory approaches, not least regarding the usability of buffers to support lending and absorb losses
- Cross-border coordination to preserve consistency with international standards when using the in-built flexibility in their regulatory and supervisory frameworks
This report also consolidates the extraordinary policy measures taken across the national membership of FSB and the standard-setting bodies to address the financial fallout of the pandemic. FSB will provide a further update on member authorities’ and standard-setting bodies’ COVID-19 responses, its financial stability risk assessment, and its work on the effectiveness of policy responses by November 2020, ahead of the G20 Leaders’ Summit.
Keywords: International, Banking, Insurance, Securities, COVID-19, LIBOR, Liquidity Risk, Stress Testing, NBFI, Regulatory Capital, Cross-Border Spillovers, G20, FSB
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EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.