FSB highlights NBFI resilience gaps, rising costs of financing and uneven Basel III reform implementation in annual report

The Financial Stability Board (FSB) released its annual report, which noted that the banking turmoil in March 2023 highlighted issues for financial stability and initial lessons for the implementation of the international resolution framework.

During the banking turmoil, swift and decisive actions were taken by the relevant authorities and that the already implemented Basel III reforms helped shield the global banking sector and real economy from a more severe banking crisis. The FSB’s review concludes that these events demonstrate the soundness of the international resolution framework but identifies several areas to enhance its implementation.

Vulnerabilities in the global financial system continue to be elevated. The cost of financing has risen substantially, at a time when debt is at very high levels across the government, corporate and household sectors. High interest rates and an uncertain growth outlook also create the potential for higher volatility in asset prices. Meanwhile vulnerabilities from structural change continue to emerge in areas such as climate change, cyber and crypto-asset markets.

The report outlines the work the FSB is doing to address these vulnerabilities. This includes work to enhance resilience in non-bank financial intermediation (NBFI); improve cross-border payments; enhance the resolution of central counterparties (CCPs); address financial risks from climate change; and finalize a global regulatory framework for crypto-asset activities.

The report finds that progress in implementing the G20 financial regulatory reforms continues but remains uneven. FSB member jurisdictions continue to implement the finalized Basel III reforms, though implementation in many cases is being pushed to 2024 or later. Work is still ongoing to close gaps in the operationalization of resolution plans for banks and to implement effective resolution regimes for insurers and CCPs. The report notes that implementation of NBFI reforms continues at a slow pace and is at an earlier stage than other reform areas.

Read the full report

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