On 18 November 2024, the Financial Stability Board (FSB) issued its 2024 annual report which looks at progress in implementing the G20 reforms and outlines action to be undertaken in 2025.

The annual report notes that certain long-standing financial system vulnerabilities remain, and these include:

  • Asset valuations remain elevated.
  • Private sector debt and property strains could spill back to the financial sector.
  • Although capital flows to emerging market and developing economies have recovered since 2022, unanticipated changes in policy rate expectations or geopolitical tensions might lead to further turbulence in capital flows and exchange rates.

There are also certain vulnerabilities from structural changes that continue to emerge, and these include:

  • The non-bank financial intermediation (NBFI) sector continues to grow and evolve. There is increasing evidence of private credit’s connections with the banking system and with institutional investors. Private credit funds are exposed to credit risk, leverage and liquidity vulnerabilities, but their opacity makes it difficult to assess them.
  • Cyber-attacks continue and recent operational incidents demonstrate how operational disruptions to third-party service providers can impact the ability of financial institutions to carry out their business.
  • Continually high global greenhouse gas emissions raise concerns about potential financial stability consequences and materialisation of transition risk could lead to stranded assets and abrupt asset repricing.

The FSB’s current work to address current and emerging vulnerabilities include:

  • The FSB has assessed vulnerabilities in the global financial system from the intersection of solvency and liquidity risks in an environment of higher interest rates, as a follow-up to the March 2023 banking turmoil.
  • The FSB continues to prioritise work to enhance the NBFI sector’s resilience. A key area of current policy focus is to enhance the monitoring of, and address financial stability risks from, leverage in NBFI.
  • The FSB has issued for public consultation a format for operational incident reporting exchange (FIRE), including cyber incidents, which aims to promote common information elements while allowing for flexible implementation practices. FIRE will be finalised in 2025.