Financial Stability Board

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Financial Stability Board
Fsb-logo.svg
AbbreviationFSB
FormationApril 2009;10 years ago (2009-04)
Type Verein
Headquarters Basel, Switzerland
Chairman
Randal K. Quarles [1]
Secretary General
Dietrich Domanski
Affiliations Bank for International Settlements, G20
Staff (2017)
33
Website fsb.org
Formerly called
Financial Stability Forum (FSF)

The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. It was established after the G20 London summit in April 2009 as a successor to the Financial Stability Forum (FSF). The Board includes all G20 major economies, FSF members, and the European Commission. Hosted and funded by the Bank for International Settlements, the board is based in Basel, Switzerland. [2]

The global financial system is the worldwide framework of legal agreements, institutions, and both formal and informal economic actors that together facilitate international flows of financial capital for purposes of investment and trade financing. Since emerging in the late 19th century during the first modern wave of economic globalization, its evolution is marked by the establishment of central banks, multilateral treaties, and intergovernmental organizations aimed at improving the transparency, regulation, and effectiveness of international markets. In the late 1800s, world migration and communication technology facilitated unprecedented growth in international trade and investment. At the onset of World War I, trade contracted as foreign exchange markets became paralyzed by money market illiquidity. Countries sought to defend against external shocks with protectionist policies and trade virtually halted by 1933, worsening the effects of the global Great Depression until a series of reciprocal trade agreements slowly reduced tariffs worldwide. Efforts to revamp the international monetary system after World War II improved exchange rate stability, fostering record growth in global finance.

2009 G20 London summit

The 2009 G20 London Summit was the second meeting of the G20 heads of government/heads of state, which was held in London on 2 April 2009 at the ExCeL Exhibition Centre to discuss financial markets and the world economy. It followed the first G20 Leaders Summit on Financial Markets and the World Economy, which was held in Washington, D.C. on 14–15 November 2008. Heads of government or heads of state from the G20 attended, with some regional and international organisations also represented. Due to the extended membership it has been referred to as the London Summit.

The Financial Stability Forum (FSF) was a group consisting of major national financial authorities such as finance ministries, central bankers, and international financial bodies. It was first convened in April 1999 in Washington. At the 2009 G20 London summit, the G20 nations established a successor to the FSF, called the Financial Stability Board with an expanded membership and broadened mandate.

Contents

History

Financial Stability Forum

The FSB's predecessor organization, the Financial Stability Forum (FSF), had emerged from a group of finance ministries, central bankers, and international financial bodies, which had been founded in 1999 to promote international financial stability by the finance ministers and central bank governors of G7 countries. [3] The FSF facilitated discussion and cooperation on supervision and surveillance of financial institutions, transactions, and events. FSF was managed by a small secretariat housed at the Bank for International Settlements in Basel, Switzerland. [4] The FSF membership included about a dozen nations who participate through their central banks, financial ministries and departments, and securities regulators, including: the United States, Japan, Germany, the United Kingdom, France, Italy, Canada, Australia, the Netherlands and several other industrialized economies as well as several international economic organizations. [5] At the G20 summit on 15 November 2008, it was agreed that the membership of the FSF will be expanded to include emerging economies, such as China. The 2009 G20 London summit decided to establish a successor to the FSF, the Financial Stability Board (FSB) to include members of the G20 who had not been FSF members. [6]

Central bank public institution that manages a states currency, money supply, and interest rates

A central bank, reserve bank, or monetary authority is the institution that manages the currency, money supply, and interest rates of a state or formal monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and also generally controls the printing/coining of the national currency, which serves as the state's legal tender. A central bank also acts as a lender of last resort to the banking sector during times of financial crisis. Most central banks also have supervisory and regulatory powers to ensure the solvency of member institutions, to prevent bank runs, and to discourage reckless or fraudulent behavior by member banks.

Bank for International Settlements International financial institution owned by central banks

The Bank for International Settlements (BIS) is an international financial institution owned by central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work through its meetings, programmes and through the Basel Process – hosting international groups pursuing global financial stability and facilitating their interaction. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.

Basel Place in Basel-Stadt, Switzerland

Basel is a city in northwestern Switzerland on the river Rhine. Basel is Switzerland's third-most-populous city with about 180,000 inhabitants.

Founding

The Financial Stability Forum met in Rome on 28–29 March 2008 in connection with the Bank for International Settlements. Members discussed current challenges in financial markets, and various policy options to address them from this point forward. [7] At this meeting, the FSF discussed a report to be delivered to G7 Finance Ministers and Central Bank Governors in April 2008. The report identifies key weaknesses underlying current financial turmoil, and recommends actions to improve market and institutional resilience. The FSF discussed work underway at the International Monetary Fund and Organisation for Economic Co-operation and Development with regard to sovereign wealth funds. The International Monetary Fund is working closely with sovereign wealth funds to identify a set of voluntary best practice guidelines, and is focusing on the governance, institutional arrangements and transparency of sovereign wealth funds. [7] On 12 April 2008, the FSF delivered a report to the G7 Finance Ministers detailing its recommendations: [8] [9]

Rome Capital city and comune in Italy

Rome is the capital city and a special comune of Italy. Rome also serves as the capital of the Lazio region. With 2,872,800 residents in 1,285 km2 (496.1 sq mi), it is also the country's most populated comune. It is the fourth most populous city in the European Union by population within city limits. It is the centre of the Metropolitan City of Rome, which has a population of 4,355,725 residents, thus making it the most populous metropolitan city in Italy. Rome is located in the central-western portion of the Italian Peninsula, within Lazio (Latium), along the shores of the Tiber. The Vatican City is an independent country inside the city boundaries of Rome, the only existing example of a country within a city: for this reason Rome has been often defined as capital of two states.

International Monetary Fund International organisation

The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C., consisting of 189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. Formed in 1944 at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. As of 2016, the fund had SDR477 billion.

Sovereign wealth fund state-owned investment fund

A sovereign wealth fund (SWF), sovereign investment fund, or social wealth fund is a state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as private equity fund or hedge funds. Sovereign wealth funds invest globally. Most SWFs are funded by revenues from commodity exports or from foreign-exchange reserves held by the central bank. By historic convention, the United States' Social Security Trust Fund, with US$2.8 trillion of assets in 2014, and similar vehicles like Japan Post Bank's JP¥200 trillion of holdings, are not considered sovereign wealth funds.

A credit rating is an evaluation of the credit risk of a prospective debtor, predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting. The credit rating represents an evaluation of a credit rating agency of the qualitative and quantitative information for the prospective debtor, including information provided by the prospective debtor and other non-public information obtained by the credit rating agency's analysts.

2012 reforms

The High-Level Panel on the Governance of the FSB was an independent initiative coordinated by Domenico Lombardi of the Brookings Institution and funded by the Connect U.S. Fund. It assembled a high-level panel of experts, including Uganda's former Finance Minister and Central Bank Governor of Uganda Ezra Suruma, former Prime Minister of Kyrgyzstan Djoomart Otorbaev, former Finance Minister of Colombia José Antonio Ocampo, and Jacques Mistral, a former member of France's Council of Economic Analysis. [10] Lombardi published the panel's final report in September 2011 as a Brookings Issue Paper, concluding that the FSB's governance had not evolved as quickly as its prominence. It made several recommendations: [11]

Domenico Lombardi is a former Director of the Global Economy program at the Centre for International Governance Innovation (CIGI), a non-partisan global governance think tank in Waterloo, Ontario, Canada. He is also Chair of the Oxford Institute for Economic Policy. Until 2013 he was a Senior Fellow at the Brookings Institution.

Brookings Institution American think tank

The Brookings Institution is an American research group founded in 1916 on Think Tank Row in Washington, D.C. It conducts research and education in the social sciences, primarily in economics, metropolitan policy, governance, foreign policy, and global economy and development. Its stated mission is to "provide innovative and practical recommendations that advance three broad goals: strengthen American democracy; foster the economic and social welfare, security and opportunity of all Americans; and secure a more open, safe, prosperous, and cooperative international system."

The Connect U.S. Fund (CUSF) was a Washington, D.C.-based nonprofit that promotes responsible U.S. global engagement in issues like nuclear nonproliferation, human rights, climate change, and development. It was founded in 2004 by several foundations and shut down in 2013. The organization supported grantees and other non-governmental organizations in their efforts to collaborate, engage policy makers, and bring issues to the attention of the media. Its last President was Nancy Soderberg.

At the 2011 G20 Cannes summit, the G20 called for a strengthening of the FSB's capacity resources and governance by establishing the FSB "on an enduring organizational basis". [12] In its 2012 report to the G20 Los Cabos summit, the FSB set out concrete steps to strengthen the organization's capacity, resources, and governance as well as establish it on an enduring organizational footing. The G20 endorsed the FSB's restated and amended charter. [13] In January 2013, the FSB became a separate legal entity in the form of an association or "Verein" under Swiss law, when its Articles of Association were adopted by the FSB Plenary. [14]

2011 G20 Cannes summit

The 2011 G20 Cannes Summit was the sixth meeting of the G20 heads of government/heads of state in a series of on-going discussions about financial markets and the world economy.

2012 G20 Los Cabos summit seventh meeting of the G-20 heads of government

The 2012 G20 Los Cabos Summit was the seventh meeting of the G20 heads of government/heads of state.

The FSB is hosted and funded by the Bank for International Settlements under a five-year agreement executed between the two in January 2013. The bank bears the majority of the FSB's operating expenses, and the FSB does not have any assets, liabilities, or revenue. [14]

2016 reforms

In late July 2016, after the world markets had faced a number of crises, including terrorism and the UK's decision to leave the European Union, Carney sent a letter to Finance Ministers attending the G20 Summit and to Central Bank Governors outlining the reforms the FSB had made [15] indicating that the global economy and financial system had "continued to function effectively" and had "weathered" the "spikes in uncertainty and risk aversion", confirming that "this resilience in the face of stress demonstrates the enduring benefits of G20 post-crisis reforms". He emphasized the value of specific reforms that had been implemented by the Financial Stability Board stating that these had "dampened aftershocks from [global financial crises] rather than amplifying them". He expressed confidence in the FSB's strategies, stating that "resilience in the face of stress demonstrates the enduring benefits of G20 post-crisis reforms". [16]

The FSB published the pre-G20 summit letter [17] in light of the "two spikes in uncertainty and risk aversion" weathered by the global economy and financial system as of late July 2016, which outlined its priorities for 2016:

In addition to the priorities listed above, the FSB also sought to:

In November 2016, the FSB and the board of the Bank for International Settlements agreed to a further five-year extension of the agreement from January 2018 to 2023. [14]

Overview

The FSB represented the G20 leaders' first major international institutional innovation. U.S. Treasury Secretary Tim Geithner has described it as "in effect, a fourth pillar" of the architecture of global economic governance. The FSB has been assigned a number of important tasks, working alongside the International Monetary Fund, World Bank, and the World Trade Organization. Chairman of the board is the Canadian Mark Carney, Governor of the Bank of England. [18]

Unlike most multilateral financial institutions, the FSB lacks a legal form and any formal power, given that its charter is an informal and nonbinding memorandum of understanding for cooperation adopted by its members. [11]

Membership

The FSB has 68 member institutions, comprising ministries of finance, central banks, and supervisory and regulatory authorities from 25 jurisdictions as well as 10 international organizations and standard-setting bodies, and 6 Regional Consultative Groups reaching out to 65 other jurisdictions around the world. [14] [19]

Members include:

Organizations
Standard-setting bodies

Chairs

As a 2011 Brookings Institution report noted, there are no set rules for how the FSB chair is selected, reflecting the FSB's newness as well as the "central banking culture of discretion and informality that permeates the institution". [11]

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References

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  2. "Contact".
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  7. 1 2 "Press release: Financial Stability Forum meets in Rome".
  8. Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience (PDF). Financial Stability Forum. 7 April 2008.
  9. "Press release: Financial Stability Forum Recommends Actions to Enhance Market and Institutional Resilience".
  10. "What We Do: High-Level Panel on the Governance of the Financial Stability Board". New Rules for Global Finance. Retrieved 11 February 2018.
  11. 1 2 3 Domenico Lombardi (September 2011). The Governance of the Financial Stability Board (PDF). Washington, DC: Brookings Institution. Retrieved 11 February 2018.
  12. "Our History". Financial Stability Board. Retrieved 11 February 2018.
  13. Report to the G20 Los Cabos Summit on Strengthening FSB Capacity, Resources and Governance (PDF). Financial Stability Board. 12 June 2012. Retrieved 11 February 2018.
  14. 1 2 3 4 Financial Stability Board (December 2017). 4th Annual Report (PDF). Basel: Financial Stability Board.
  15. "FSB Chair updates G20 Finance Ministers and Central Bank Governors on progress in advancing the FSB's 2016 priorities". The Asian Banker. 24 July 2016. Retrieved 25 July 2016. The letter outlines the progress the FSB is making in advancing its priorities for 2016
  16. Szu, Ping Chan (24 July 2016). "G20: Chancellor eyes clarity on Brexit deal 'later this year' as vote raises global risks". The Telegraph. London, UK. Retrieved 25 July 2016.
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  18. "Mark Carney gets chance to reshape Bank of England after departure of deputy governor". Financial Post . 13 June 2013. Retrieved 20 June 2013.
  19. "Links to FSB members". Financial Stability Board. Retrieved 17 November 2011.

Coordinates: 47°32′53″N7°35′30″E / 47.5481°N 7.5918°E / 47.5481; 7.5918