FSB Review Policy Initiatives and Global Risks
The Financial Stability Board (FSB) met in Paris on 19 July 2011 to review draft consultation papers on measures to address the risks posed by global systemically important financial institutions (GSIFIs). Members also assessed vulnerabilities affecting the financial system and the progress of initiatives in a variety of policy areas. The meeting also approved the finalised arrangements for the establishment of regional consultative groups to broaden the range of countries involved in the FSB’s work.
The FSB discussed the current strains in financial markets arising from sovereign debt. The European Central Bank (ECB), European Commission (EC) and International Monetary Fund (IMF) briefed the FSB on the ongoing policy discussions to address the heightened risks. Sovereign and financial system risks are closely entwined. Relevant governments must act forcefully to strengthen fiscal positions and bolster competitiveness through structural reforms within concrete timetables. The financial industry must continue to repair and strengthen balance sheets to rebuild resilience to shocks.
The FSB reviewed the publication of the results from the European bank stress test exercise. The stress tests provide additional transparency on risk exposures. The FSB will continue to carefully monitor market developments and actions to strengthen bank balance sheets, and will work together closely to support financial stability.
The FSB reviewed two consultative papers, to be published in the coming days, that will take forward work under the FSB’s initiative to address the systemic and moral hazard risks arising from systemically important financial institutions (SIFIs).
The first consultative paper will set out a methodology for assessing the global systemic importance of banks and the magnitude of additional loss absorbency that globally systemic banks will be required to have. It also describes the instruments that can be used to meet the loss absorbency requirements.
The second consultative paper will propose a comprehensive package of policy measures to improve the capacity of authorities to resolve failing SIFIs without systemic disruption and without exposing the taxpayer to the risk of loss. It sets out proposed actions to improve national resolution regimes and tools, establish effective home/host co-operation arrangements and improve resolution planning by firms and authorities.