United States: FSB prioritizes non-bank financial intermediation, money market funds and cross-border payments by 2021
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Randal K. Quarles, Deputy Chairman of the Federal Reserve Board responsible for oversight, who is also Chairman of the Financial Stability Board (“FSB”), identified non-bank financial intermediation (“NBFI”), money market funds and cross-border payments as priority areas of the FSB for 2021.
Mr. Quarles said the prominence of NBFIs in the financial ecosystem has created greater interconnection and, therefore, a need to understand vulnerabilities arising from risks outside the banking system. He noted that the NBFI sector accounts for almost half of all global financial assets.
Mr Quarles referred to the FSB Holistic review of the March market turmoil in order to highlight one of his “most significant discoveries”: the “race for liquidity” which particularly hit prime money market funds (“MMF”). The referenced run was “faster” than that of the September 2008 crisis in terms of the percentage of assets bought back. Mr Quarles pointed out that this race was of more concern, given that measures were implemented after 2008 “precisely to reduce the likelihood of such races.” The FSB will publish a report outlining policy proposals to improve the resilience of MMFs, which should reduce government interventions and taxpayer support and halt future MMF operations.
Regarding the improvement of the cross-border payment system, said Mr Quarles, the CSF must first set “specific quantitative targets”. This responsibility will fall to a CSF task force, tasked with (i) issuing a consultative document in May and (ii) providing a final set of goals to the G20 in October. Mr Quarles also said that while the work of the FSB focuses on its responsibilities to the G20, he acknowledged that cross-border payments are global and, to this end, the FSB will partner with the World Bank and the Fund. international monetary policy.
Quarles also revealed that the FSB will release in April “its most ambitious assessment” of the effects of post-2008 banking reforms, an assessment that describes the work that remains to fully achieve reforms “too big to fail”. .
- FRB Speech, Randal K. Quarles: The FSB in 2021 – Meeting the challenges of financial stability in an era of interdependence, innovation and change
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