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11 January 2010

FSB on the financial reform agenda: it is essential to raise the quality and level of capital in the banking system

FSB agreed to take forward the regulatory policy reform agenda and reaffirm the timelines for policy development and implementation in 2010. A framework for strengthening international standards, and reviewed current conditions in the financial system, was also agreed.

The Financial Stability Board (FSB) met in Basel on 9 January to take forward the regulatory policy reform agenda and reaffirm the timelines for policy development and implementation in 2010. The meeting also agreed on a framework for strengthening adherence to international standards, and reviewed current conditions and adjustment in the financial system.

The following issues were discussed:
·         Financial conditions
Financial conditions have strengthened across a range of markets in recent months. For many financial institutions, access to liquidity and capital from the private sector has improved. As a result, a variety of emergency financial sector support measures put in place during the crisis are being withdrawn or scaled back.
·         Improving financial regulation
Further work is essential to address the underlying weaknesses that gave rise to the crisis. Momentum is being maintained towards meeting the clear targets set by G20 Leaders for improving financial regulation. Coordination is taking place to achieve consistency across borders and maintain a level playing field.
·         Sound compensation practices. FSB members are undertaking substantial changes in oversight of compensation practices in order to ensure they are better aligned with risk. In December 2009 the FSB launched a peer review of implementation of the Principles and Standards for Sound Compensation Practices. The review will focus on the steps being taken or planned by FSB member jurisdictions to ensure effective application of the Principles and Standards, as well as progress to date in implementation by significant financial institutions. The review is to be completed by March 2010, as requested by G20 Leaders, and the resulting report will be published.
·         Bank capital and liquidity. FSB members reaffirmed their commitment to raising the quality and level of capital and liquidity buffers in the banking system. They expressed support for the timing and direction of the Basel Committee’s recent consultation package of proposals to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector.
·         Reducing moral hazard and strengthening capacity for cross-border resolution. The FSB agreed on the next steps of the work programme it announced last September to develop by the end of October 2010 a package of measures to address the “too big to fail” problems associated with systemically important financial institutions. This work is being taken forward as a high priority. It brings together projects by a number of FSB member bodies, and covers three areas: reducing the probability and impact of a systemically important financial institution’s failure; improving the capacity to undertake an orderly resolution of a failing firm; and strengthening the core infrastructures and markets. A preliminary assessment and possible policy options will be presented to the June 2010 G20 Summit.
·         The perimeter and consistency of regulation. The FSB welcomed the Joint Forum report on the differentiated nature and scope of regulation, which makes recommendations to address current gaps in supervision and regulation, and to increase the consistency of approach across sectors. The FSB will monitor policy development on the issues the report identifies and propose action where issues raised are not yet being addressed.
·         Strengthening accounting standards. As requested by the G20 Leaders, the FSB continues to monitor progress in implementing G20 and FSB recommendations for improved, converged accounting standards. FSB members welcomed the IASB’s plan to continue its enhanced technical dialogue with prudential authorities and market regulators on financial institution reporting issues, and to conclude its full review of the financial instruments standard by the end of this year.
·         Framework to strengthen adherence to international standards.
The FSB is publishing today the framework that it is putting in place for strengthening adherence to international financial standards. Consistent implementation of international standards is necessary to protect financial stability.

© Financial Stability Board

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