Recent strains in commodities and bond markets underscore the importance of this topic.
The Financial Stability Board (FSB) published today a progress report to the G20 on enhancing the resilience of non-bank financial intermediation (NBFI),
including a set of policy proposals to address systemic risk in NBFI
and programme of further work. Recent strains in commodities and bond
markets underscore the importance of this topic.
The report describes the main findings to date and next steps in
assessing and addressing vulnerabilities in money market funds,
open-ended funds, margining practices, bond market liquidity, and
cross-border USD funding in emerging market economies (EMEs). It also
sets out policy proposals to address systemic risk in NBFI, focusing on
those activities and types of entities (“key amplifiers”) that may
particularly contribute to aggregate liquidity imbalances and the
transmission and amplification of shocks. The proposals involve largely
repurposing existing tools rather than creating new ones, given the
extensive micro-prudential and investor protection toolkit already
available. The FSB will assess in due course whether repurposing such
tools is sufficient, including the need to develop additional tools for
use by authorities.
The main focus of the policy proposals is to reduce excessive spikes
in the demand for liquidity by addressing the vulnerabilities that drive
those spikes or by mitigating their financial stability impact. One set
of policies focuses on addressing structural liquidity mismatch in
open-ended funds and promoting greater inclusion and use of liquidity
management tools, including by developing detailed guidance on the
design and use of those tools. The second set comprises policy work to
address procyclicality of margining in centrally cleared and
non-centrally cleared derivatives and securities markets, including by
enhancing transparency and the liquidity preparedness of market
participants. The FSB will also carry out work to assess and, where
necessary, take policy action to address vulnerabilities associated with
leverage.
To enhance the resilience of liquidity supply in stress, the report
notes that individual authorities may consider ways to increase the
availability and use of central clearing for government bond cash and
repo transactions; the use of all-to-all trading platforms; and measures
to enhance the transparency of bond and repo markets. In addition, the
report proposes a number of policy measures that seek to reduce EME
vulnerabilities stemming from external funding and non-bank financing,
as well as to enhance their crisis management tools. The FSB and IOSCO
will work to enhance the functioning and resilience of short-term
funding markets, and consider additional work in due course to enhance
resilience of liquidity provision in core bond markets.
The report provides an overview of the FSB’s work programme on NBFI for 2023 and beyond.
FSB
© FSB - Financial Stability Board
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