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November 20, 2018

FSB published the final report on the evaluation of the effects of financial regulatory reforms on infrastructure finance. This final report follows a public consultation earlier this year. 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. FSB also published an overview of responses to the public consultation, which summarizes the issues raised in the public consultation and sets out the main changes that have been made in the evaluation report to address them.

While the G20 reforms do not specifically target the provision of infrastructure finance, a broad range of financial regulations can potentially affect it. This reflects the diverse nature of infrastructure finance, involving different types of financial intermediaries and instruments. The reforms that have been largely implemented and are most relevant for this evaluation are the initial Basel III capital and liquidity requirements (agreed in 2010) and over-the-counter (OTC) derivatives reforms. Both sets of reforms were subject to qualitative and quantitative analyses. Other G20 reforms that may be relevant for infrastructure finance but are at an earlier implementation stage (for example, Basel III reforms finalized in December 2017, investment funds reforms accounting standards) are reviewed qualitatively, given the lack of data required for a quantitative assessment. In addition to the G20 reforms, national and regional regulations for insurers (for example, differentiated treatment of infrastructure assets introduced recently into Solvency II and in some other jurisdictions) and pension funds (for example, investment limits) may affect infrastructure finance and these regulations have also been considered qualitatively.

The report first defines relevant concepts and describes the overall structure and trends in infrastructure finance by financial market participants. It then outlines the relevant reforms potentially affecting infrastructure finance, along with their implementation timelines and possible transmission channels. Finally, it presents the results of the qualitative and empirical analysis on the effects of reforms on infrastructure finance and concludes by providing an overall assessment of the effects of reforms on infrastructure finance. The report also includes annexes with additional information on the market structure and trends in infrastructure finance (Annex A); regulations that are potentially relevant for this type of finance (Annex B); empirical analysis (Annex C); analysis of the qualitative survey responses (Annex D); stylized analysis of changes in regulatory capital to the cost of bank-based infrastructure finance (Annex E); and review of the relevant literature (Annex F).

The evaluation is among the first under the FSB framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms and 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.

 

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Keywords: International, Banking, Insurance, Securities, Regulatory Reforms, Infrastructure Finance, Basel III, Solvency II, Market Based Finance, OTC Derivatives, FSB

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