The FSB will submit two reports to the G20 Leaders’ Summit in Pittsburgh where it states that, despite welcome signs of movement toward normalisation of markets in recent months, fragilities remain and the supply of credit remains weak.
The Financial Stability Board (FSB) met in Paris on 15 September. This was the second plenary meeting of the FSB since its establishment in April. The FSB reviewed the main risks facing the financial system and potential policy responses. In this meeting the following issues were discussed:
· Progress in implementing reforms. The FSB will submit two reports to the G20 Leaders’ Summit in Pittsburgh on 24-25 September: an overview of progress since the London Summit in implementing therecommendations of G20 Leaders and of the FSB’s predecessor, the Financial Stability Forum; and a forward-looking assessment of the next steps for improving Financial Regulation.
· Further work to improve financial regulation. Much work remains to be done to implement the reform agenda in full. It is important thatinternational policy development be completed and consistent national implementation follows.
· Strengthening the global capital framework. Decisions have now been taken by supervisors that will lead to a comprehensive set of measures to strengthen the capital framework which would substantially raise the level and quality of capital and reduce procyclicality in the banking system. The reforms will set reasonable implementation windows to avoid impeding the recovery of the economy.
· Making global liquidity more robust. The Basel Committee will publish by end-2009 specific proposals for a new minimum global liquidity standard.
· Reducing moral hazard and strengthening capacity for cross-border resolution. The FSB is setting in train a work programme to address the moral hazard risks and other challenges posed by systemically important institutions.
· Strengthening accounting standards. The FSB welcomed the steps taken by accounting standard setters to address weaknesses in existing standards and the enhanced dialogue between the International Accounting Standards Board, prudential authorities and market regulators on financial institution reporting issues.
· Improving compensation practices. The FSB will set out for the Pittsburgh Summit specific implementation guidelines on the governance, structure and disclosure of compensation.
· Expanding monitoring of the financial system. The FSB reviewed progress to implement consistent regulatory approaches to the registration, monitoring and reporting requirements of hedge funds and also the registration and monitoring of credit rating agencies. The FSB also asked IOSCO to continue its work on the issues raised by unregulated markets and products.
· Strengthening the robustness of the OTC derivatives market. The official sector will strengthen capital requirements to reflect the risks of OTC derivatives and further incentivise the move to central counterparties or organised exchanges.
· Re-launching securitisation on a sound basis. Regulatory and industry initiatives are underway to strengthen standards and market practices for securitisation, including standardising terms and structures, reducing complexity and enhancing transparency.
· Adherence to international standards. The FSB is developing a framework to strengthen adherence to international regulatory and supervisory standards.
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