Meeting of the Financial Stability Board in Tokyo (1)

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Hi! How’s everyone doing?

Probably, most of the university students have there mid-term pretty soon. Cheer up!

Today, I want to talk about the ‘Financial Stability Board (FSB) meeting in Tokyo’ which was held for two days last week, 10th and 11th of October. The Vice-Chairman of FSC, Mr. Choo Kyung-ho, attended this meeting. As well as Mr. Choo, the financial chief officers from FSB member countries and the Basel Committee on Banking Supervision (BCBS) were at the meeting.

 

 

Now you may notice it was an international meeting on a pretty large scale. Then why was this meeting held? It was a follow-up meeting for the G20 Summit in June. FSB meeting was organized to check the progresses of G20 leaders’ commitment about financial regulatory reform initiatives. Based on this check-up, FSB meeting discussed additional measures gainst possible risks in global financial system. From now on, I will let you know some of the agendas discussed at the meeting.

 

Vulnerabilities in the financial system

It is said that the confidence of investors and access to financial markets have improved with the implementation of recent regulations in the global financial system. This is shown from the enhanced competitiveness and current account adjustment of EU’s neighboring countries. Hence, it is important to keep this pace to maximize the expected effects of the reforms.

The meeting discussed the current financial stability risk caused by a slowdown of global growth. In order to prevent further instability, the supervisors are advised to be aware of signs of asset quality deterioration and ensure robust provisioning and capital levels.

The issue of recent fragmentation phenomenon in the global financial system was also brought up. It is found that many banks are increasingly retrieving from global activities

While this trend mainly appeared in euro area only, it is getting spread out across other regions. In this regards, supervisors and regulators should monitor measures acting as disincentive to cross-border activities to ensure they do not go beyond prudent risk mitigation.

 

Addressing SIFI (Systemically Important Financial Institutions)

The FSB endorsed for publication the finalized framework for dealing with Domestic Systemically Important banks (D-SIBs) developed by the BCBS. Along with D-SIBs, the annual update of Global Systemically Important Banks (G-SIBs) was discussed. G-SIBs publication will come out next month on the basis of end-2011 data.

FSB Members were showing their ongoing interests about ‘FSB peer review’. The review will be finalized in early next year, which is for the purpose of evaluating member jurisdictions’ existing resolution regimes. The review also deals with any planned changes in line with the FSB’s Key Attributes of Effective Resolution Regimes. A consultation paper with guidance on recovery and resolution planning will be issued in this October.

 

Shadow banking

The FSB discussed a draft set of recommendations to strengthen the oversight and regulation of shadow banking. The recommendations covered the following areas; interactions between banks and shadow banking entities, money market funds, shadow banking entities other than money market funds, securitization, and securities lending and repos. Regarding the matter, FSB expects to publish a finalized version of policy recommendations to strengthen regulation of shadow banking. The publication will be available after the g20 Ministers and Governors meeting in November.

 

 

In this post, I addressed three agendas discussed at the meeting. Actually, there were more discussions covering a variety of issues in the global financial system. About the other agendas, another blog post will be written. Then, please look forward to the next post, and I wish you a good luck for your mid-term exams!

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