The Financial Stability Board (FSB) has published its second annual report to the G20 on the implementation and effects of the financial regulatory reforms. The FSB’s concludes that:
- implementation progress remains steady but uneven, and that the strengthened resilience brought about by the reforms has stood the financial system in good stead;
- the largest internationally active banks are much more resilient than before the crisis and are on track to meet the Basel III capital and liquidity standards. This has been achieved while maintaining the overall provision of credit to the real economy;
- implementation of policies to end too-big-to-fail has advanced for most global systemically important banks, but there is still a lot of work needed to build effective resolution regimes and operationalise resolution plans for cross-border firms; and
- there has been progress in strengthening the resilience of financial markets, although more effort is needed to implement reforms to the over-the-counter (OTC) derivatives market and to turn shadow banking into resilient market-based finance.
The report includes further analysis on three areas identified in last year’s report as meriting close attention:
- market liquidity;
- effects of reforms on emerging market and developing economies; and
- maintaining an open and integrated global financial system.
On market liquidity, the report concludes that there is limited evidence of a broad deterioration in market liquidity, although there is some evidence of less depth in certain sovereign and corporate bond markets.
The report highlights key challenges that G20 leaders need to address to ensure the full, timely and consistent implementation of the reforms. These include:
- putting in place legal powers to share information across borders and to give prompt effect to foreign resolution actions;
- removing legal barriers to reporting OTC derivatives to trade repositories and to authorities’ access to such data; and
- removing other legal, data and capacity constraints that could hamper implementation efforts.
The FSB, in collaboration with the standard-setting bodies, continues to enhance the analysis of the effects of reforms. Policies will be adjusted where necessary to address material unintended consequences.