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The Financial Stability Board (FSB) Deutsche Bundesbank Monthly Report October 2013 47 International cooperation in the area of financial sector policy – the Financial Stability Board (FSB) On the Financial Stability Board (FSB), central banks, finance ministries and supervisory authorities of the most important economies work together with international financial institutions and standard setting bodies. The Bundesbank is a member of the FSB and already formed part of its predecessor, the Financial Stability Forum (FSF). The FSB continuously monitors the stability of the global financial system and promotes financial sector regulation. Following the mandate pro- vided by the G20 heads of state and government, at the beginning of this year the FSB was placed on an enduring organisational footing, with legal personality, greater financial autonomy and strong internal governance. The FSB is the G20’s central point of contact for all financial sector issues and therefore now forms an integral part of international financial sector policy making. The G20 assigned the FSB a leading role in analysing and learning the lessons of the financial crisis and tasked it with regular reporting to the highest political level. Key FSB duties include deal- ing with systemically important financial institutions and improving the oversight and regulation of the shadow banking system. To achieve these aims, the FSB has created a comprehensive regu- latory framework and is rigorously promoting its implementation. The FSB’s role as a cross-sector coordinator has added a new dimension to international financial sector policy. The members of the FSB have undertaken to apply international standards and implement agreed reforms consistently and on schedule. The FSB insists on compliance with this undertaking and monitors implementation by means of peer reviews, among other methods. Given that the FSB’s recommendations are not legally binding, political support from the G20 remains crucial to the body’s success and the regulatory response to the financial crisis in general. Deutsche Bundesbank Monthly Report October 2013 48 From the Financial Stability European Commission, joined the FSF. At the Forum to the Financial April 2009 London summit, the G20 leaders re- solved to re- establish the FSF as the Financial Stability Board Stability Board (FSB). At the subsequent Pitts- Financial The Financial Stability Board (FSB) coordinates burgh summit in September 2009, the G20 Stability Forum the work of the national authorities, inter- countries ratified the FSB Charter, based on the replaced by Financial national institutions and standard setters re- London summit recommendations, defining Stability Board sponsible for financial stability.1 It originated the objectives, mandate and membership of from the Financial Stability Forum (FSF), estab- the FSB. lished upon a proposal made by the Bundes- bank’s then- President Hans Tietmeyer at a At their Cannes summit in November 2011, the FSB placed on meeting of the G7 finance ministers and cen- G20 leaders resolved to give the FSB legal per- strong institu- tional ground tral bank governors in February 1999.2 The FSF, sonality and greater financial autonomy. An based at the Bank for International Settlements FSB working group chaired by Bundesbank (BIS) in Basel, was founded on the idea of a President Jens Weidmann was commissioned permanent “round table” designed to address with developing recommendations to this ef- issues regarding the strengthening of the inter- fect.4, 5 The G20 leaders adopted these recom- national financial system across national bor- mendations at their Los Cabos summit in June ders, sectors and institutions.3 2012. The FSB was founded as an association under Swiss civil law in January 2013. Financial crisis The global financial crisis significantly increased led to enhanced the FSF’s importance. In response to the crisis, status of G20, … the G7 assigned the FSF a key role in reforming financial sector regulation. Owing to the global nature of the crisis, the G20, which also en- compasses the key emerging market econ- omies, superseded the G7 as the most import- ant informal intergovernmental forum for inter- national economic and fiscal policy cooper- 1 See also the chart on p 50. ation. Given this shift in informal international 2 The proposal was part of a report to the G7 finance min- cooperation from the G7 to the G20 and the isters and central bank governors; published in Deutsche Bundesbank, Monthly Report, May 1999, pp 5-12. enhanced status of the FSF, associated with its 3 The FSF’s members were the central banks, finance min- role in analysing and learning the lessons of the istries and supervisory authorities of the G7 countries (Can- ada, France, Germany, Italy, Japan, the United Kingdom crisis, it appeared advisable to fundamentally and the United States), the central banks of Australia, Hong reform the FSF. This reform was fleshed out Kong, the Netherlands and Singapore, and representatives of European and global institutions and standard setters. and implemented in several steps over the See also Deutsche Bundesbank, Recent institutional devel- period between 2009 and 2013. opments in economic and monetary cooperation, Monthly Report, January 2001, pp 15-33. 4 See Financial Stability Board, Report to the G20 Los Ca- … which Following the bankruptcy of US investment bos Summit on Strengthening FSB Capacity, Resources and Governance, June 2012. decided to bank Lehman Brothers in September 2008 and expand the FSF 5 Reform proposals voiced by various parties during the and re- establish the dramatic intensification of the international simultaneous public debate ranged from keeping the status it as the FSB quo to placing the FSB under the aegis of the International financial crisis triggered by that event, a “world Monetary Fund (IMF) or expanding the FSB to form an financial summit” at the level of G20 leaders international organisation. For more information, see Council on Global Financial Regulation, Practical Measures was held for the first time in Washington DC in for Enhancing International Regulatory Coordination, April November 2008. At this summit, the G20 lead- 2011; E Helleiner, What Role for the New Financial Stability Board? The Politics of International Standards after the Cri- ers called for a larger FSF membership. In sis, October 2010; D Lombardi, Brookings Institution, The March 2009, the remaining G20 countries not Governance of the Financial Stability Board, Issues Paper, September 2011; G Schinasi and E Truman, Reform of the represented in the FSF, as well as Spain and the Global Financial Architecture, September 2010. Deutsche Bundesbank Monthly Report October 2013 49 Key elements of institutional In its new legal form, the FSB remains closely Advantages tied to the BIS. Under the BIS’s existing Head- created by close improvements to the links to BIS quarters Agreement, the FSB has the usual im- maintained, … Financial Stability Board munity and privileges for international organ- Establishment as In order to maintain the FSB’s informal charac- isations based in Switzerland. Its relations with an association ter under the reform, it was deliberately not es- the BIS mean that it can continue to use syner- under Swiss law and governance tablished as an international organisation based gies associated with the “Basel Process” of in- reform on an intergovernmental treaty. Converting it formal cooperation between central banks, into an association enabled the FSB’s formal supervisory authorities and standard setters in role in the framework of international institu- the area of supervision and regulation. The tions to be maintained without necessitating physical proximity of the numerous Basel- based any fundamental change to its organisational bodies promotes the exchange of information, structure and method of functioning. Its mem- helps avoid overlaps or gaps in work pro- bers still have the final say on all major issues grammes and thus makes the work of all par- and also on the development of recommenda- ties involved easier. This issues- oriented Basel tions and standards. This is also appropriate Process is a very valuable tool for promoting given that sovereignty in the area of financial international cooperation in the area of finan- sector regulation has not been transferred, or cial sector regulation. has been transferred to only a limited extent, to the supranational level. This means that the FSB By signing a temporary five-year service agree- … financial can still be classified as being engaged in infor- ment with the BIS, the FSB has achieved greater autonomy has risen … mal international cooperation; it cannot adopt financial autonomy within an agreed budgetary legally binding decisions, nor can it enforce its framework. Its funding is being provided fully own decisions by taking coercive measures by the BIS for the time being; the FSB has opted against its members. Its decisions are enforced not to collect membership fees at this stage. instead through self-commitments by its mem- This ensures a reliable underlying source of bers. The FSB’s ongoing monitoring of imple- funding. At the same time, this funding model mentation progress, its regular reports to the is flexible enough to be adjusted to any future G20 and peer reviews all help in this regard. changes in the FSB’s tasks and also to compen- sate for longer-run fluctuations in funding re- Outreach pro- The FSB has established procedures to promote quirements. The FSB’s staff is still employed by motes cooper- contact with other countries outside the the BIS; however, the FSB is largely independ- ation with add- itional countries bounds of its membership (known as out- ent in its staffing decisions. reach). Non- members are integrated into the FSB’s work through Regional Consultative The FSB has also updated its internal govern- … and organ- Groups, of which there are six at present.6 Re- ance structure. A Standing Committee on isational struc- ture has been gional and global risks and vulnerabilities in the Budget and Resources, created in November improved financial system and issues relating to financial 2012, is now responsible for financial govern- sector regulation are discussed at their meet- ance.
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