The Financial Stability Board (FSB) on Wednesday made recommendations to governments to reduce risks around hedge funds, insurers and other non-bank financial intermediaries, which now account for almost half of global financial assets.
The sector of non-bank financial intermediation is projected to grow by nearly 130% between 2009 and 2023, according to the Basel-based FSB, which acts as the G20’s financial risk watchdog, making markets more vulnerable to stress events. It is done.
FSB Secretary General John Schindler said, “This increase comes with an increase in complexity and interconnectedness in the financial system, which, if not properly managed, could pose substantial risks to financial stability.”
In its consultation report, the FSB proposed that member governments and institutions focus their attention on non-banks and ensure that they adequately manage their credit risks.
One set of recommendations calls for the creation of a domestic framework to identify and monitor financial stability risks related to non-bank leverage.
Another group proposes that policy measures should be selected, designed and calibrated by governments to mitigate identified financial stability risks.
A third group deals with counterparty credit risk management, calling for timely and thorough implementation of the revised guidelines of the Basel Committee on Banking Supervision.
The FSB also proposed enhancing private disclosure practices in the non-bank sector and addressing any regulatory anomalies by adopting the principle of “similar risk, similar regulatory treatment”.
The final recommendation calls for improved cross-border cooperation and collaboration.
Along with the consultation report, the FSB is inviting comments from member governments and institutions on its policy recommendations.
The final report is planned to be released in mid-2025.
