FSB consulted on recommendations to address financial stability risks arising from leverage in non-bank financial intermediation (NBFI), to aid authorities' risk monitoring.
Proposed recommendations aim to enhance ability of authorities, market participants to identify, monitor, contain financial stability risks associated with leverage in NBFI.
They call for authorities to address financial stability risks from NBFI leverage in core financial markets; ensure sufficient counterparty credit risk management by leverage providers; determine if, how to address any inconsistencies in regulatory treatment.
FSB and standard-setting bodies (SSBs) will undertake further work to support, assist authorities in applying the recommendations, including developing potential guidance.
proposed policy recommendations are addressed to FSB member authorities and SSBs.
The proposed recommendations build on the 2023 FSB report, entitled The Financial Stability Implications of Leverage inNon-Bank Financial Intermediation, which found that NBFI leverage played a significant role in recent episodes of market stress.
In scope entities are non-bank financial firms that use leverage, financial or synthetic, e.g. hedge funds, other leveraged investment funds, pension funds, insurance firms.
Where relevant, banks, broker-dealers also in scope in their role as leverage providers.
FSB noted that market structures, legal frameworks, financial stability risks related to leverage vary across jurisdictions; report outlined general principles for selection, design, and calibration of policy measures, noting that, in many cases, combinations of the policy measures outlined may be most effective in addressing financial stability risks arising from NBFI leverage.
Recommendations
Nine policy recommendations cover: risk identification and monitoring, supported by a suite of risk metrics, and work to assess and address data challenges.
Measures to address financial stability risks related to NBFI leverage in core financial markets, including measures affecting specific activities, entity types, concentration-related risks; counterparty credit risk management and private disclosure.
Addressing inconsistencies by adopting same risk, same regulatory treatment principle.
And recommendations on enhancing cross-border cooperation and collaboration.
Effectiveness
The deadline for comments on the proposals in Feb. 28, 2025.
