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FSB to G20: Past Agreement Implementation “Imperative”

In a letter from Financial
Stability Board (FSB) chair Mark Carney to G20 finance ministers and central
bank governors in advance of the weekend G20 meeting in Shanghai, Carney notes
“The imperative now is to implement fully and consistently the G20’s past

In the letter, Carney notes
that more difficult economic and financial conditions since the start of 2016
reflect “in part downward revisions to the expected medium-term growth
prospects of the world economy as a result of renewed appreciation of the
structural challenges facing a number of advanced and emerging economies”.

More specifically in
the financial sector he notes conditions, “also reflect concerns that many
banks have more to do to adjust their long-term business models to the lower
growth/lower nominal interest rate environment and to the strengthened
international regulatory framework”.

Whilst suggesting that
the greater resilience of the financial system resulting from the new
regulatory framework will ensure that the financial system can better support
jobs and growth in the short, medium and long term, Carney also observes that “recent
market turbulence really serves to underline the importance of continued
progress in building resilient financial institutions and markets”.

Whilst stressing that
the FSB needs to follow up and complete previous G20 initiatives, Carney also
states that authorities also need to remain vigilant to new risks and
vulnerabilities and to ensure that markets are supported by robust financial

“In this manner the
G20 can develop a diverse and open global financial system that can finance
investment in the real economy throughout the economic cycle,” he states.

The letter sets out
the FSB’s priorities for 2016, which are to support the full and consistent
implementation of post crisis reforms, while remaining ready to address any
material unintended consequences; to address new and emerging vulnerabilities
in the financial system, including potential risks associated with market-based
finance, asset management activities, conduct, correspondent banking and
climate change;  and the promotion of
robust financial infrastructure, working with the Committee on Payments and
Market Infrastructures and the International Organization of Securities
Commissions to assess policies on central counterparty (CCP) resilience,
recovery and resolvability, and recommending any necessary improvements.

The FSB says it will
also be supporting the objectives of the Chinese G20 presidency by drawing
lessons, working with the International Monetary Fund and the Bank for
International Settlements, from the practical application of macroprudential
policy frameworks and tools; and assessing the systemic implications of
financial technology innovations, and the systemic risks that may arise from
operational disruptions.

The letter concludes, “The
G20 has worked intensively over the past seven years to fix the fault lines
that led to the Global Financial Crisis. Durable success will require sustained
efforts to implement fully the G20’s agreed reforms; to monitor their effects
on growth; to maintain constant vigilance to new and evolving risks; and to
deepen the FSB’s open and cooperative approach.

“In these ways, the
FSB can fully support the G20’s efforts to build a resilient, open and trusted
financial system that will support strong, sustainable and balanced growth for
all countries.”   Twitter @lamboPnL

Colin Lambert

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