FSB Reports Assess NBFI Sector and Progress on LIBOR Transition
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.
The report on LIBOR transition highlights that the transition from LIBOR to overnight risk-free rates and efforts made to improve the robustness of interest rate benchmarks have increased market stability and integrity. Most LIBOR settings have now ceased and, while certain panel-based USD settings are continuing until end-June 2023, to support the transition of legacy contracts, the market has already shifted new activity away from LIBOR and toward risk-free rates. While significant progress has been made, especially among FSB jurisdictions where exposure to LIBOR is the highest, the report notes that there may be some residual risk arising from relatively low awareness of transition among users of USD LIBOR in jurisdictions where LIBOR exposure is low. The report calls for market participants to take active steps to address existing legacy contracts in preparation for the end of the remaining panel-based USD LIBOR settings and for the winding down of temporary synthetic LIBOR rates. The report also notes that authorities have been coordinating closely with each other to ensure that approaches to provide targeted solutions for legacy contracts complement one another. Looking ahead, it is essential that the financial system is anchored in robust reference rates that are underpinned by deep and liquid markets.
The report on non-bank financial intermediation notes that the NBFI sector linkages with the banking sector have continued to decrease since 2013. This was the case both in terms of funding and exposures. The other financial intermediaries’ sector—a subset of the overall NBFI sector that excludes insurance corporations, pension funds, and financial auxiliaries)—had the largest cross-border linkages across all financial sectors, as in previous years. The NBFI sector overall continued to be a net provider of cash in the repo market and its net level of repo assets rebounded strongly in 2021. The report also notes that global economic and financial conditions have deteriorated significantly since the beginning of 2022, with knock-on effects on the NBFI sector. While most of the analysis in this report is based on data through the end of 2021, economic and financial conditions have changed markedly since then. In 2022, slowing global growth, the war in Ukraine, commodities' price pressures, supply-chain disruptions, higher-than-expected inflation, and rising interest rates have provided a testing environment for the financial system including the NBFI sector and particularly its narrow measure. As part of its work program to enhance the resilience of the NBFI sector, FSB has identified key amplifiers of liquidity stress in the sector and will continue to develop metrics and tools to monitor associated vulnerabilities. These developments and experiences may shape future iterations of the annual monitoring exercise.
Related Links
Keywords: International, Banking, Securities, Insurance, Non Bank Financial Intermediation, NBFI, Systemic Risk, Interest Rate Risk, Risk Free Rates, Interest Rate Benchmarks, Benchmark Reforms, Basel, Lending, FSB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Blake Coules
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.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
CDP Announces 2022 Disclosure Scores, Welcomes COP15 Final AgreementRelated Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
