The Financial Stability Board (FSB) published a report describing the progress over the past year and the planned work to enhance the resilience of non-bank financial intermediation. The report, which was delivered to G20 Leaders ahead of their Summit last weekend, describes the key findings to date and the next steps in the key areas of focus. It also details the FSB work program on non-bank financial intermediation for 2022 and beyond as well as the key deliverables for 2022. The focus areas include enhancing resilience of money market funds, liquidity risk management in open-ended funds, assessment of drivers of liquidity in core government and corporate bond markets during stress, review of margin call frameworks in derivatives and securities markets.
The report provides an overview of non-bank financial intermediation ecosystem and a framework to analyze the availability of liquidity and its effective intermediation under stressed market conditions. It notes that the ability of market participants to manage risks efficiently and minimize market dislocations when adjusting their portfolios is a key determinant of the functioning and resilience of the non-bank financial intermediation ecosystem. These dislocations become more likely in the case of large imbalances between liquidity supply and demand. The non-bank financial intermediation resilience, therefore, depends on the behavior of different types of entities in the ecosystem as well as on the infrastructure and activities that connect those entities, together and with other parts of the financial system. The main focus of work to date has been on assessing and addressing vulnerabilities in specific non-bank financial intermediation areas that may have contributed to the build-up of liquidity imbalances and their amplification. Building on the key findings presented in the report, the FSB’s work going forward aims to develop a systemic approach to non-bank financial intermediation. It involves enhancing the understanding of systemic risks in non-bank financial intermediation to strengthen their ongoing monitoring and, where appropriate, developing policies to address such risks. The focus of policy work is to ensure that the current policy toolkit is adequate and effective from a system-wide perspective, drawing on the lessons from the March 2020 market turmoil.
The focus of the non-bank financial intermediation work program in 2022 is to use the insights from analysis in particular areas to develop a systemic approach to non-bank financial intermediation. This work will be carried out within FSB as well as by its member standard-setting bodies and international organizations, to ensure that relevant experiences and perspectives are brought to bear. The deliverables include stand-alone reports in specific areas of the program and an overall progress report to the G20 in late 2022, with the main findings across different areas and policy proposals to address systemic risk in non-bank financial intermediation. BCBS-CPMI-IOSCO consultation report on margin calls in centrally cleared and non-centrally cleared derivatives and securities markets and liquidity management preparedness of market participants is expected to be completed by the first half of 2022 while FSB and relevant standard-setting bodies expect to carry out potential follow-up work based on the final report in the second half of 2022 and beyond. FSB is also expected to publish a report on policy proposals to address systemic risk in non-bank financial intermediation in the fourth quarter of 2022.
Keywords: International, Banking, NBFI, Money Market Funds, Systemic Risk, Derivatives, Margin Requirements, Non-Bank Financial Intermediation, FSB
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Previous ArticleFASB Proposes Changes to Interim Disclosure Requirements
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.