The Financial Stability Board said that with the global financial system recovering, the support provided by governments to the sector may need to become more targeted.

The FSB, which met in Basel, Switzerland, last week, observed that financial conditions have strengthened across a range of markets in recent months.

“For many financial institutions, access to liquidity and capital from the private sector has improved. As a result, a variety of emergency financial sector support measures put in place during the crisis are being withdrawn or scaled back,” it said.

However, it also noted that, while there are signs of recovery in the system as a whole, “the strength of that recovery is increasingly differentiated among markets and institutions.” As a result, it suggested that the policy response, including continued official support, may “need to be more targeted to addressing specific areas of weakness”.

Additionally, at the meeting, the FSB agreed on a framework for strengthening adherence to international standards. Under the framework: jurisdictions that belong to the FSB will implement international financial standards and disclose their level of adherence; they will undergo peridioc peer reviews to evaluate their adherence to international standards.

The first of these peer reviews will address the implementation of the FSB Principles for Sound Compensation Practices, which were endorsed by the G20 leaders at their summits in London and Pittsburgh last year. The review on compensation will focus on the steps being taken or planned by countries to ensure effective application of the principles and standards, as well as progress to date in implementation by significant financial institutions. The initial review is to be completed by March and the report will be published.

At the meeting, FSB members also reaffirmed their commitment to raising the quality and level of capital and liquidity buffers in the banking system, they expressed their support for the Basel Committee’s recent proposals in that area, and they confirmed their commitment to implement the resulting standards.

The FSB also agreed on the next steps in the work program it announced last September to develop, by the end of October 2010, a package of measures to address the “too big to fail” problems associated with systemically important financial institutions. It also discussed changes in concentration and competitive conditions in the provision of financial services, and aid that it continues to monitor progress in implementing G20 and FSB recommendations for improved, converged accounting standards.

The FSB has been established to address vulnerabilities and to develop and implement strong regulatory, supervisory and other policies in the interest of financial stability.

It comprises senior representatives of national financial authorities (central banks, regulatory and supervisory authorities and ministries of finance), international financial institutions, standard setting bodies, and committees of central bank experts.

IE