25 June 2019

FSB Chair reports to G20 Leaders ahead of Osaka Summit

The Financial Stability Board (FSB) published FSB Chair Randal K. Quarles’ letter to G20 Leaders ahead of their Summit in Osaka on 28-29 June, together with a progress report on implementation of the G20 financial regulatory reforms.

 The reports that we have delivered to G20 Leaders, and the work of the FSB more generally, reflect these priorities. I will take a few minutes now to set out some of the initiatives that I am reporting on to G20 Leaders.

One key area of our work is assessing vulnerabilities in the global financial system so that authorities can take appropriate action in good time. Surveillance is at the core of the FSB’s mandate, and we remain vigilant in identifying emerging risks. The episodes of higher macroeconomic and market volatility during the past year have reminded us of the importance of a financial system that is resilient to shocks, whatever the source.

Potential vulnerabilities persist and, in some cases, have built up further. Corporate and public debt levels have continued to rise. In particular the FSB is closely monitoring the risks from leveraged loans, directly and through collateralised loan obligations and collecting information from our members in order to obtain a fuller picture of the pattern of exposures to these assets globally.

The FSB’s vulnerabilities assessment also considers the financial stability implications of structural shifts in the global financial system. One such shift concerns the continued growth of financial intermediation by non-banks, which now accounts for almost half of global financial assets. The FSB continues to study the implications for financial stability of this shift toward non-bank intermediation and whether the existing set of policy tools are sufficient to address the resulting potential vulnerabilities.

Another major structural shift relates to technological innovation, which offers potentially huge benefits, not least in terms of efficiency and inclusiveness. However, rapid progress can also present challenges. A deep and early understanding of how innovation may transform financial institutions and markets is key for harnessing benefits while containing risks.

An open and resilient financial system, grounded in agreed international standards, is crucial to support sustainable growth. Recognising the importance of openness, we have investigated issues around market fragmentation – that is, financial activity that is fragmented along geographical borders. Financial regulation and supervision may give rise to such fragmentation, in particular if that regulation and supervision causes cross-border frictions in financial activities that are international in nature.

A particular focus of our work has been to identify instances where addressing market fragmentation might have a positive impact on financial stability or improve market efficiency without any detrimental effect on financial stability. Our report examines issues relating to the cross-border trading and clearing of over-the-counter derivatives, cross-border management of capital and liquidity, and international sharing of data and other information. The focus of our follow-up work will be on enhancing the effectiveness and efficiency of international cooperation to address and prevent market fragmentation.

Lastly, as you’ve likely heard me say before, the FSB is committed to strengthening its outreach and accountability. We are looking at ways to improve our outreach to countries beyond the 24 in the FSB, and taking steps to improve communication and transparency with other external stakeholders, to facilitate wider input to the FSB’s work and increase understanding of what we do.

To sum up, the FSB remains committed to preserving global financial stability. Our transition from determined crisis response to a rigorous assessment of emerging vulnerabilities and addressing them where needed, reflects this commitment. And we are conscious that the success of the next chapter of the FSB must be written with the help of all G20 members, with contributions from a wide array of stakeholders, including the knowledge of the private sector, the expertise of the academic community and with input from the public—to whom we owe a resilient, equitable and inclusive financial system.

Full speech

Progress in implementation of G20 financial regulatory reforms

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