Federal Reserve Board Vice Chair for Supervision Randal Quarles shared a set of core principles and work priorities for the Financial Stability Board ("FSB").
In remarks delivered at the Joint Conference of the European Central Bank and the Journal of Money, Credit and Banking, Mr. Quarles set forth the following key principles that will strengthen the FSB's work: (i) engagement, (ii) rigor and (iii) analysis. Mr. Quarles stated that the FSB must consistently engage with a broad range of stakeholders and experts to perform sufficient analysis, and warned that there could be another crisis if the FSB is not "rigorously vigilant." The FSB, according to Mr. Quarles, requires forward-looking methodologies that use analytical tools to identify potential vulnerabilities in the global financial system.
Mr. Quarles identified FinTech, nonbank financing and "too-big-to-fail" reforms as three issues on the FSB's agenda in 2019.
On FinTech, Mr. Quarles stated that the FSB will be applying the core principles to the movement toward decentralization, that is, "technologies that connect financial market participants directly without an intermediary." He said that these technologies "touch on financial stability" and have broad impacts on "settling interbank payments; verifying and reconciling trade finance invoices; executing, enforcing and verifying the performance of contracts; and keeping an audit trail to deter money laundering."
On nonbank financing intermediation, Mr. Quarles said the FSB will continue to assess the risks. He questioned whether the "large -- and increasing -- role for nonbank financing" will alter existing market structures and thereby create new vulnerabilities to the financial system. He noted that the shift towards nonbank financing is a "welcome increase in the diversity of the sources of lending" to firms and households. However, he said, "nonbank financing often features high leverage, maturity and liquidity mismatches, opaque structures, and concentrated holdings of risky assets," and "can also lead to lower lending standards, bidding up the price of risky assets and sending an encouraging signal to credit underwriters."
On "too-big-to-fail" concerns, Mr. Quarles said the FSB is launching an evaluation of the effects of reforms such as raising resolution standards intended to improve the potential for non-disruptive bank failure.
The Conference took place in Frankfurt, Germany.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
