On 24 February 2021, the Chair of the Financial Stability Board (FSB) Randal K. Quarles wrote an open letter to Finance Ministers and Central Bank Governors on the FSB’s key priorities for 2021 ahead of their virtual meeting on 26 February 2021.
The Chair noted the unprecedented challenges faced by the FSB, like many others, due to the outbreak of COVID-19 and the imposition of containment measures across the globe (the COVID-19 event). Notwithstanding this, the FSB 2021 work programme is to proceed, including with its priorities which include addressing vulnerabilities directly related to COVID-19 and the resilience of non-bank financial intermediation (NBFI).
In the letter, the Chair sets out a range of FSB deliverables and associated dates for this year.
Addressing COVID-19 Related Vulnerabilities
The FSB has supported international coordination on policy responses to COVID-19. The FSB is now considering factors needed to prepare for an orderly unwinding of COVID-19 support measures, where such unwinding is appropriate. The FSB is also developing a better understanding of the risks to financial stability of rising debt levels in the corporate sector. The Chair proposes to report on this work to the G20 in April.
The FSB will also provide the G20 an assessment of initial lessons learnt from the COVID-19 event for financial stability, with an interim report in July and a final report in October. This assessment will, alongside the work of other standard setting bodies (SSBs), examine how well capital and liquidity buffers as well as crisis management and operational resilience arrangements worked during the COVID-19 event.
Increasing the Resilience of NBFI
The FSB work programme aims to strengthen the resilience of NBFI.
The need for such strengthening was seen in the market turmoil of March 2020 where investors mistakenly understood money market funds (MMFs), particularly non-government MMFs, to be cash equivalent resulting in liquidity mismatches. The Chair announced that the FSB, with SSBs, will provide a consultative report to the G20 in July on policy proposals to enhance MMF resilience, and a final report in October.
In addition, the FSB will continue to examine:
- margin calls in centrally cleared and uncleared markets;
- liquidity preparations of market participants for margin calls;
- open-ended fund types that faced redemption challenges in the 2020 market turmoil; and
- structural and interconnectedness issues in NBFI, including the interaction of USD funding pressures and fund outflows in emerging market economies.
Making Cross-Border Payments Cheaper, Faster and More Inclusive
G20 Leaders have endorsed the FSB’s Roadmap to enhance cross-border payments. In the letter, the Chair states that the next step is setting quantitative targets. The FSB will deliver a final set of targets in October for G20 enforcement, together with an overall progress report on the implementation of the FSB Roadmap.
The FSB is continuing its work on global ‘stablecoins’ as part of the Roadmap. Last October, the FSB submitted to the G20 high-level recommendations to address the regulatory, supervisory and oversight challenges raised by global ‘stablecoins’. In the letter, the Chair states that the FSB will update the G20 in October on how national and international frameworks capture ‘stablecoins’ in light of the FSB recommendations.
Bettering Our Understanding of Climate-related Risks
In addition to assessing the availability of data through which climate-related risks to financial stability can be monitored, the FSB will also explore ways of promoting globally comparable, high quality and auditable standards of disclosure based on the recommendations of the Task Force on Climate-related Financial Disclosure. The FSB continues to review regulatory approaches to addressing climate-related risks at financial institutions.
Addressing Other Financial Stability Topics of Ongoing Importance
The Chair notes that the COVID-19 event cannot result in the FSB pausing its work on addressing other important financial stability topics. These include the smooth transition away from LIBOR, enhancing central counterparty resilience and revising the FSB Cyber Lexicon.
Road Ahead
The Chair concludes the letter by noting that the COVID-19 Event may yet require adjustments to the FSB Work Programme and additional analysis for topics yet to be foreseen.
That being said, the Chair particularly looks forward to delivering final reports on policy proposals to enhance MMF resilience and lessons learnt from COVID-19.
and then 