The Financial Stability Board today issued a set of policy proposals aimed at addressing systemic risk in the nonbank financial intermediation sector, which the group said are intended to “reduce liquidity demand spikes; enhance the resilience of supply in stress; and enhance risk monitoring and the preparedness of authorities and market participants.”
To address liquidity spikes, FSB is calling for changes to existing FSB and International Organization of Securities Commissions recommendations to “address structural liquidity mismatch in open-ended funds,” among other things. It also recommended additional policy work on increasing transparency in centrally cleared markets; enhancing the liquidity preparedness of market participants; identifying data gaps in regulatory reporting; streamlining variation margin processes in centrally and noncentrally cleared markets; and evaluating the responsiveness of both centrally cleared and noncentrally cleared initial margin models to market stresses.
To enhance resiliency of liquidity supply in stress, FSB recommended that regulators consider ways to increase the availability and use of central clearing for government bond cash and repo transactions; the use of all-to-all trading platforms; and measures to enhance the transparency of bond and repo markets. FSB said it will also work to develop additional tools to help monitor NBFI vulnerabilities.