FSB consults on the effects of reforms on infrastructure finance

18 July 2018

The Financial Stability Board (FSB) published a consultation report on the Evaluation of the effects of financial regulatory reforms on infrastructure finance, and is seeking public feedback on the results of the evaluation to date.

The report concludes that the effect of the G20 financial reforms on infrastructure finance is of a second order relative to other factors, such as the macro-financial environment, government policy and institutional factors. In particular, for the reforms that have been largely implemented and are most relevant for this evaluation – namely, the initial Basel III capital and liquidity requirements (agreed in 2010) and over-the-counter (OTC) derivatives reforms – the analysis thus far does not identify material negative effects on the provision and cost of infrastructure finance.

The evaluation further finds that:

• The overall amount of infrastructure finance has grown in recent years after a temporary drop during the financial crisis. Market-based finance – mainly project and (particularly) corporate bond issuance as well as non-bank financing – has accounted for most of the growth in advanced economies in recent years.
• Lending spreads for infrastructure finance have returned to lower levels in recent years following a spike during the crisis, but remain above pre-crisis levels.
• There are differences in the provision of infrastructure finance in emerging market and developing economies compared to advanced economies. Emerging market and developing economies tend to rely more on bank loans, have a higher proportion of cross-border financing, and use local currency less for financing purposes (although the proportion of local currency is increasing).
• The reforms have contributed to shorter average maturities of infrastructure loans by global systemically important banks. This effect is not necessarily unintended, given that reducing banks’ maturity mismatch was one of the objectives of the reforms.
• While not analysing the ex post effects of reforms on financial resilience, the evaluation has found no results to suggest that the wider benefits to the financial system from enhanced resilience – as estimated at an aggregate level in ex ante impact assessment studies – do not apply in the narrower context of infrastructure finance.
• The analysis points to some substitution in recent years of bank financing by market-based financing in advanced economies, and the G20 banking reforms may have been one of the drivers for this rebalancing.

The FSB welcomes responses to the questions set out in the consultative document by Wednesday 22 August 2018.

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