FSB Provides Update on Efforts to Enhance ‘Shadow Banking’ Resilience

The Financial Stability Board this week provided an update on its efforts to enhance the resilience of the nonbank financial intermediation, or shadow banking, sector. In a new report, the FSB acknowledged the significant growth of the NBFI sector—which now accounts for almost half of global financial assets, up from 42% in 2008—as well as the significant turmoil the sector experienced during the pandemic.

The FSB said that its main work to date has been on “assessing and addressing vulnerabilities in specific areas that may have contributed to the buildup of liquidity imbalances and their amplification. This includes policy work to enhance MMF resilience; work to assess liquidity risk and its management in open-ended funds; work to examine the structure and drivers of liquidity in core bond markets during stress; an examination of the frameworks and dynamics of margin calls in centrally cleared and non-centrally cleared derivatives and securities markets; and an assessment of the fragilities in USD cross-border funding and their interaction with vulnerabilities in emerging market economies.”

Looking ahead to 2022, the FSB said that the focus of its NBFI work program will be on using insights from analysis in particular areas to develop a “systemic approach” to NBFI.