On 12 April 2023, the Financial Stability Board (FSB) published a letter from its Chair, Klaas Knot, to G20 Finance Ministers and Central Bank Governors, ahead of their meeting on 12-13 April. The letter discusses the recent turmoil in the banking sector and touches on its recommendations to address increasing cyber threats.

Mr Knot notes that the financial stability outlook has become more challenging in recent weeks as a result of events in the banking sector. The FSB’s ongoing surveillance has highlighted vulnerabilities associated with elevated debt levels, business models based on the presumption of low and stable interest rates, stretched asset valuations, and the combination of leverage and liquidity mismatches in non-bank financial intermediations. Each of these vulnerabilities is sensitive to a tightening of financial conditions and slowing economic activity.

The letter notes that, while the financial reforms put in place following the 2008 Global Financial Crisis have assisted in making the banking sector as a whole better able to absorb adverse shocks, the speed of the recent developments, the precise nature of the vulnerabilities that crystallised and the associated market reactions provide important lessons for financial authorities, including for bank prudential and resolution frameworks. The FSB is working closely with the Basel Committee on Banking Supervision and other standard-setting bodies to comprehensively draw out these lessons and the consequent priorities for future work, while at the same time, FSB members remain vigilant and stand ready to take policy measures to maintain the resilience of the global financial system.

Mr Knot emphasises, however, that while some reprioritisation of the FSB’s work programme may be necessary in response to recent events, the FSB remains committed to delivering its previously agreed body of work to the G20, including in the areas of crypto-assets, NBFI, climate change and enhancing cross-border payments. These areas of work remain just as relevant as before, as they aim to address key vulnerabilities which could propagate or amplify future shocks to the global financial system.

Finally, the letter introduces the FSB’s cyber incident reporting recommendations, which have been finalised following a public consultation and which the FSB will deliver at the G20 meeting.