The Financial Stability Board (FSB) published its annual report presenting the work done to promote global financial stability. The report notes that the outlook for financial stability continues to be dominated by the COVID-19 pandemic, with the recovery uneven across economies and sectors. The report highlights the analytical and policy work the FSB is doing to foster global financial stability in response to the pandemic as well as to new and emerging risks. This includes, among others, work on the resilience of non-bank financial intermediation (NBFI), cyber incident response and recovery, “global stablecoin” arrangements (to enhance cross-border payments), and climate-related financial risks.
The report finds that there has been limited additional progress in implementing G20 reforms over the past year, as authorities have focused on responding to the impacts of the pandemic. Regulatory adoption of core Basel III elements has generally been timely to date, but implementation of the final reforms to the capital framework is still at a very early stage. More work is needed to close gaps in the operationalization of resolution plans of banks and to implement effective resolution regimes for insurers and central counterparties. The report notes that the COVID experience provides important lessons for functioning of the G20 reforms and reinforces the importance of global regulatory cooperation and of completing the remaining elements of the post-crisis reform agenda. The financial stability benefits of the full, timely, and consistent implementation of G20 reforms remain as relevant as when they were initially agreed. It will be important to evaluate the functioning of implemented reforms during COVID-19 and evaluate whether they are effectively working as intended. FSB and the standard-setting bodies will continue to promote approaches to deepen international cooperation, coordination, and information-sharing, with the support of the G20.
The report also highlights that authorities continue to closely monitor developments to ensure that the pandemic does not test resilience of the global financial system. One of the legacies of the pandemic is the build-up of debt in the non-financial sector. Addressing debt overhang, including by assessing the viability of companies, facilitating the market exit of unviable companies, and promoting an efficient reallocation of resources to viable firms, may be a key task for policymakers going forward. FSB is working on possible approaches to dealing with debt overhang issues from a financial stability perspective and will publish, in early 2022, a thematic peer review on experience with out-of-court corporate debt workouts.
Keywords: International, Banking, Securities, Basel, COVID-19, NBFI, Climate Change Risk, Stablecoins, Cross-Border Payments, Cyber Risk, Final Basel III Reforms, FSB
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