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June 27, 2018

Randal K. Quarles of FED spoke about the interest of United States in the global efforts to promote financial stability. He discussed the role of FSB in improving global financial stability and gave a brief on how this international organization functions, while speaking at the Utah Bankers Association 110th Annual Convention in Sun Valley, Idaho. He also provided a brief update on steps the Congress and the FED are taking to tailor financial regulation to banks, based on their sizes and business models.

With respect to the FSB, Mr. Quarles highlighted that “America's active participation in FSB is important to our nation.” From the United States, FED, the U.S. Treasury Department, and SEC are members of FSB. At the time of the financial crisis, “information sharing about systemic financial vulnerabilities was more limited, particularly for conditions outside the United States.” One challenge that the United States faced, in responding to the crisis and establishing more effective oversight and higher standards was the inability to enforce such rules in a global financial system without common, more uniform standards. If some of the activities threatening financial stability occurred outside the United States and in jurisdictions with lower standards, raising standards in the United States would be both ineffective in fully stabilizing the financial system, and could put U.S. firms at a competitive disadvantage, which would be only an added disincentive to embrace effective standards. If FSB had been in place before the crisis and working on identifying and assessing vulnerabilities to financial stability, that may have allowed us to take action at an earlier stage, frame our response with more information, and possibly mitigate some of the devastating consequences.

An important part of the work of FSB is to endorse minimum standards in different areas; for example, identifying the key attributes of effective resolution planning for systemically important firms. FSB is also in the early stages of some critical work that examines the effects of the reforms and standards implemented so far. Tailoring regulations based on bank sizes, does not mean abandoning our responsibility to promote a stable financial system, but embracing it, assisted by FSB efforts to ensure that reforms are having the intended effects and supported by the global standards that FSB and other international standard-setting bodies are able to establish and promote.

He also examined the issue of sovereignty, specifically, the concerns that international bodies such as FSB threaten sovereignty of the country by imposing rules on the United States. He said, “Let me be clear: the FSB has no enforcement powers, no legal authority to command its members to do anything, and not even authority, as in some international organizations, to induce action based on contractual obligations. The FSB does not impose obligations, it addresses problems—problems that are of great importance to the United States and which, because of the global nature of the financial system, we cannot address alone. The United States and other governments created the FSB and participate in it because it is in our national interests to do so, and that is really the basis of its effectiveness. The United States is not weaker or less independent by participating in the FSB or other standard-setting bodies. On the contrary, when rightly structured our participation in these groups makes our financial system significantly stronger by ensuring that the U.S. perspective is part of the discussions and reflected in standards agreed to. Our consumers and businesses are more secure and prosperous because the FSB helps make sure that all countries are doing their share in promoting financial stability and not gaining an unfair advantage.”

He explained that FSB functions by consensus, which complicates decision making, but also has the potential to yield truly effective decisions. At FSB, relying on consensus helps 68 agencies and other members from two dozen countries with different perspectives and agendas come together around shared interests in a stable global financial system. “International negotiations and standard-setting is not the best approach to all problems, but in my past experience as a Treasury Department official, it is often the best way to tackle problems that are global in scope. By actively participating in the FSB and engaging with its members at a high level, the United States is supporting high international standards that are equal to those in the United States. Our standards will be most effective when other major economies embrace them in a consistent manner.”

 

Related Link: Speech

Keywords: Americas, US, Banking, Financial Stability, FSB, International Cooperation, Cross Border Cooperation, FED

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