Vulnerabilities in the financial system

 

The ongoing international programme of financial reforms is strengthening the robustness of the global financial system. However, pockets of weakness in the banking system remain, and sovereign and banking risks are closely intertwined in some countries. Members noted the risks of sudden changes in funding conditions, credit losses and yield curves, and stressed the importance of credible fiscal consolidation programmes to lower financial system risks. The FSB emphasised the need to press decisively ahead with the repair and strengthening of weak banking systems, using the forthcoming rounds of stress tests to address expeditiously any weak points identified.

There are signs that the low interest rate environment, which has been necessary to support growth and financial sector recovery, may be leading investors to search for yield in more complex non-standard market segments that increase exposure to liquidity risks. Developments in exchange-traded funds, commodities and high-yield markets are examples that warrant closer surveillance by regulatory authorities. In a number of emerging markets economies, rapid credit growth and portfolio inflows have raised the risks of asset price inflation and other financial imbalances. The FSB discussed macroprudential measures taken in a number of countries to reduce resulting financial system vulnerabilities.

Key financial regulatory reforms

Addressing systemically important financial institutions (SIFIs). The FSB discussed progress in work to identify global SIFIs (G-SIFIs) and approaches to assessing the added loss absorbency that such institutions should meet. It also discussed progress in work to enable the orderly resolution of such financial institutions. It agreed an accelerated timetable.

Press release