The Financial Stability Board (FSB) published a letter from its chair, Klaas Knot, to G20 Finance Ministers and Central Bank Governors, ahead of the G20 meeting on 28-29 February.
Among the items, Knot warned that “abrupt shifts in market pricing could expose vulnerabilities in the financial system, including those related to leverage and liquidity mismatch in NBFI.”
He also noted a challenging outlook for global financial stability, despite steady economic growth and signs of easing global financial conditions. Debt service challenges could increase, and exposures to sectors facing existing headwinds, like commercial real estate, bear close monitoring. Asset valuations are also stretched in some key markets.
The FSB will work to ensure the effective implementation of the international framework provided by the FSB Key Attributes of Effective Resolution Regimes, address the financial stability risks stemming from leverage in NBFI, and analyze the financial stability implications of tokenization and artificial intelligence.
To address growing financial stability risks from cyber incidents, the FSB is designing a format for incident reporting exchange (FIRE) for public consultation.