Financial markets should be prepared for the possibility of sharp adjustments in interest rates, exchange rates, valuations of financial instruments, market volatility and liquidity. Some emerging markets may experience a combination of slower growth, capital outflows and higher borrowing costs which may expose vulnerabilities, associated with the rapid growth of credit in recent years and increased use of foreign currency borrowing by the non-financial corporate sector. Authorities need to remain vigilant to deteriorating underwriting standards and the build-up of leverage within the financial system, including the shadow banking system.
Members discussed deliverables in the ongoing work to address systemically important financial institutions (SIFIs), as set out in the St Petersburg G20 Leaders Declaration. The FSB reviewed work underway in several areas, including:
to develop proposals by the Brisbane Summit on the adequacy, composition and location of gone-concern loss-absorbing capacity for global systemically important banks (G-SIBs);
by the International Association of Insurance Supervisors to develop by the Brisbane Summit a basic capital requirement on which higher loss absorbency for global systemically important insurers will be built;
to assist supervisors in their assessment of financial institutions' risk culture, as deficiencies in risk culture were one of the root causes of the global financial crisis. The finalised guidance on supervisory interaction with financial institutions on risk culture will be published in early April, following the consultative report last November;
to strengthen supervisory intensity and effectiveness. The FSB will publish in April a progress report, including setting out areas where more work to strengthen supervisory effectiveness is still needed.
The FSB approved an information-sharing process among its members to support oversight and regulation of shadow banking entities other than money market funds. The FSB will start information sharing among authorities in May, using this agreed process, and will launch a peer review on national implementation of the FSB's high-level policy framework in this policy area in 2015.
The FSB also approved an implementation timetable, to be published in April, for the policy recommendations to address financial stability risks associated with securities financing transactions that were published in August 2013.
Full press release
© FSB - Financial Stability Board
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