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March 22, 2017

Carney outlines FSB role in assessing G20 financial reforms

By Vincent Huck

The Financial Stability Board’s (FSB’s) chair Mark Carney has sent a letter to G20 finance ministers and the Central Bank governors to warn them against the risk of a loss of momentum in completing and fully implementing essential international standards.

In his letter, Carney highlighted that the G20 had achieved some success in implementing important reform post financial crisis. “A series of measures are eliminating toxic forms of shadow banking, and more generally transforming shadow banking into resilient market-based finance,” he wrote. “Durable market infrastructure is simplifying the previously complex – and dangerous – web of exposures in derivative markets. And authorities are now both more vigilant to emerging vulnerabilities and more consistent in preventing regulatory arbitrage.”

However he warned that there were nascent risks that if left unchecked could fragment financial markets and ultimately undermine the G20’s objective for strong sustainable and balanced growth.

To counter this risk, Carney argued that the G20 finance ministers and governors should consider reinforcing international regulatory cooperation and suggested that the FSB played a role focusing on the implementation and effects of the reforms.

“In this spirit, the FSB is increasingly assessing the effectiveness of the G20 financial reforms, their interactions and combined effects. This includes any unintended consequences for emerging market and developing economies. To embed this approach, the FSB is now developing a structured framework for these evaluations,” Carney wrote suggesting that the framework will be delivered to the G20 summit in Hamburg in July.

Carney’s letter then proceeded to lay out the FSB’s priorities under the German G20 presidency which started in December last year and will run until November of this year. According to Carney’s letter, the FSB has four main priorities in the month ahead:

  • Transforming shadow banking into resilient market-based finance, including by addressing structural vulnerabilities in asset management;
  • Making derivatives markets safer by progressing the post-crisis reforms to over-the-counter derivatives markets and delivering coordinated guidance on central counterparty resilience, recovery and resolution;
  • Supporting full and consistent implementation of post-crisis reforms, including the development of a structured framework for post-implementation evaluation of the effects of reforms; and
  • Addressing new and emerging vulnerabilities, including misconduct risks, as well as those stemming from the decline in correspondent banking and from climate-related financial risks.

Carney’s letter was sent to the G20 finance ministers and Central Bank governors ahead of their meeting in Baden-Baden on 17 and 18 March, and the full text is accessible online on the FSB website

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