Established in the wake of the 2008 global financial crisis, the FSB emerged as a pivotal international institution aimed at promoting global financial stability. Its inception was a direct response to the pressing need for enhanced coordination and cooperation among various countries, central banks, and international financial entities. Tasked with the critical role of monitoring and making recommendations about the global financial system, the FSB’s foundations are rooted in the lessons learned from the crisis. Operating as something of an amalgamation of the world’s major economies, the FSB possesses significant influence in shaping international financial regulations, thereby ensuring the resilience and robustness of global financial systems. Its establishment and the vast realm of its influence underscore the international community’s commitment to averting future financial meltdowns.
The Financial Stability Board’s Framework
The FSB boasts a sophisticated framework aimed at detecting and addressing systemic risks in the financial sector. Crucially, it also monitors the deployment of these risk-mitigating solutions. Central to the FSB is the Plenary, its main decision-making entity, supported by the Steering Committee, which manages operational tasks between Plenary gatherings. Three Standing Committees further refine its structure:
The Standing Committee on Assessment of Vulnerabilities (SCAV): It identifies and assesses financial system risks.
The Standing Committee on Supervisory and Regulatory Cooperation (SRC): This committee crafts regulatory responses to threats identified by the SCAV.
The Standing Committee on Standards Implementation (SCSI): This committee oversees the application of FSB policies and global standards.
In addition, the Standing Committee on Budget and Resources (SCBR) manages the FSB’s financial health and offers key recommendations to the Plenary.
Although the FSB’s decisions are impactful, they aren’t legally binding. Relying on moral persuasion, the FSB sets globally accepted policies and standards, expecting members to adopt them nationally. Each FSB member commits to financial stability, transparency, adherence to key international standards, and participates in peer reviews, often informed by reports from institutions like the IMF and World Bank. At present, the FSB consists of 71 member entities. These include finance ministries, central banks, and regulatory bodies from 25 regions. Additionally, they collaborate with 13 global organisations and standard-setting entities. The FSB also interacts with 65 jurisdictions worldwide through its 6 Regional Consultative Groups.
The FSB members’ dedication to global standards isn’t simply symbolic. Their commitment strengthens the FSB’s credibility and exemplifies their ambition for excellence. The FSB thereby fosters a global strive for excellence, encouraging nations to consistently enhance their financial benchmarks.
The FSB at establishment was focused on nine specific areas of management and leadership in increasing global financial stability. Each of these areas is outlined below, and further notes are added to suggest how the FSB has attempted to uphold this role and its apparent success or otherwise:
The FSB aims to continually evaluate risks impacting the global financial system and determine the necessary regulatory and supervisory measures to address these risks from a broad financial stability viewpoint.
The FSB has actively upheld this intent by routinely publishing reports and recommendations that shed light on global financial vulnerabilities. Their efforts to coordinate national financial authorities and international standard-setting bodies have been evident in their comprehensive reviews. However, while the FSB has successfully identified potential risks, the implementation of their recommendations relies heavily on member countries, which can vary in efficacy.
The FSB seeks to foster collaboration and facilitate the sharing of information among entities overseeing financial stability.
The FSB has consistently organised global meetings and forums to encourage dialogue among financial authorities. Through their platforms, vital information and strategies are shared. While they’ve been instrumental in facilitating communication, the effectiveness of these exchanges largely depends on member participation and commitment.
The FSB aims to oversee market trends and provide guidance on their consequences for regulatory strategy.
The FSB has proactively assessed market evolutions, issuing advisory notes to inform regulatory stances. Their analyses have been pivotal in shaping many national policies. Nevertheless, translating their advisories into actionable policy can sometimes be challenging, very much contingent on individual national contexts.
The FSB strives to oversee and recommend exemplary methods for achieving regulatory benchmarks.
The FSB has been proactive in evaluating global regulatory practices, suggesting best approaches to meet set standards. Their recommendations have influenced many jurisdictions’ practices. However, the real-world adoption and efficacy of these best practices has inevitably varied by region and specific regulatory environment.
The FSB commits to collaboratively reviewing international standard-setting entities, ensuring their policy work is well-coordinated, timely, prioritised and fills any existing gaps.
The FSB has embarked on collective evaluations of major standard-setting bodies, striving for cohesive policy development. While they’ve significantly streamlined international policy endeavours, ensuring every gap is addressed remains an ongoing challenge given the rapidly evolving nature of financial landscapes.
The FSB aims to outline criteria for creating and enhancing supervisory colleges.
The FSB has diligently formulated guidelines to foster the development of supervisory colleges. These institutions play a crucial role in global financial supervision. While many colleges have benefitted from the FSB’s guidance, the actual impact often hinges on local implementation and engagement.
The FSB endeavours to bolster contingency strategies for international crisis handling, especially concerning systemically crucial entities.
The FSB has actively developed frameworks to address cross-border financial disturbances, with a focus on pivotal firms. Their efforts have enhanced global preparedness, but the effectiveness of these strategies is frequently tested during real crises.
The FSB aims to partner with the IMF to undertake ‘Early Warning Exercises’.
The FSB, in collaboration with the IMF, has consistently engaged in ‘Early Warning Exercises’ to anticipate financial vulnerabilities. Their joint efforts have offered insights into potential risks, although the proactive mitigation of these risks remains a complex challenge.
The FSB aspires to encourage members to adopt shared commitments, standards and policy guidance, using monitoring, peer assessments and transparency.
The FSB has been active in monitoring member adherence to shared principles. Through peer reviews and fostering transparency, they’ve cultivated a sense of accountability. However, consistent implementation varies across members, reflecting differing local priorities and challenges.
The Financial Stability Board stands as a pivotal entity in the global financial landscape, dedicated to promoting financial stability by identifying vulnerabilities and setting international standards. With its extensive reach, it has a significant effect in all parts of the world. Over the years, the FSB’s concerted efforts have largely succeeded in fostering a more resilient and transparent financial system on a global scale. However, the world ahead is always uncertain; the Financial Stability Board is likely to face substantial challenges going forward, from evolving financial technologies, the impact of global economic shifts, regulatory harmonisation across jurisdictions, and addressing non-traditional financial risks like climate change.