Ahead of G20 meeting, FSB chair warns of economic slowdown

The Financial Stability Board today published a letter from Chairman Klaas Knot warning of global financial system vulnerabilities and providing an update on the group’s work in key areas.

The letter, sent to G20 finance ministers and central bank governors ahead of a meeting later this week, warned that the combination of slower growth, rising inflation and tighter global financial conditions may exacerbate pre-existing weaknesses in global markets or expose new ones. Cited in particular were rising sovereign, corporate and household debt; liquidity mismatches and hidden leverage in nonbank financial intermediation; and the adverse effects of tightening financial conditions on emerging markets and developing economies. The letter also outlined risks from financial strains in commodity markets.

In addition, Knott provided updates on the FSB’s recent work in three areas: COVID-19 response, climate and cryptocurrency, including a report that was issued today on exit strategies to support equitable recovery and the effects of COVID-19 on the financial sector. The letter noted that economic vulnerabilities kept at bay by support measures during the pandemic could now materialize “when policy space is limited and firms and households have reduced financial buffers.”

Knott added that FSB has also updated its roadmap for addressing climate-related financial risks in disclosures, data, vulnerabilities analysis and regulatory and supervisory approaches. The FSB will publish its work with the Network for Greening the Financial System on climate scenarios in November and the final version of its report on supervisory and regulatory approaches to climate-related risks in October.

The letter also readdressed FSB’s statement yesterday on crypto assets, reiterating that stablecoins and other crypto assets do not operate in a regulation-free space and must meet all applicable regulatory requirements.