The Financial Stability Board says that while market conditions have improved in recent weeks, major downside risks remain.
Following its meeting in Basel Tuesday, the FSB released a statement indicating that it sees the European sovereign debt crisis continuing to weigh on the global financial system. “High risk aversion and weak economic growth are compounding the refinancing challenges facing sovereigns and financial institutions,” it notes, adding, “Although market conditions have improved in recent weeks, downside risks remain substantial.”
The FSB said that it supports the policy measures that have been taken so far to address the crisis, and that it looks forward to European, and other national, authorities “fully and promptly implementing a comprehensive set of measures to support confidence and lower market tensions.”
On top of examining the vulnerabilities affecting the global financial system, the FSB also focused on its plans for strengthening global financial regulation in the year ahead, including measures to address systemically important financial institutions, shadow banking, and the over-the-counter derivatives markets. Systemically important financial firms are required to have recovery and resolution plans in place by the end of the year. And, the G20’s OTC derivatives market reforms are also supposed to be complete by the end of 2012.
Among other things, the FSB is also supporting work on the creation of a legal entity identifier (a unique global identifier for parties to financial transactions), and it has set up an expert group, to be supported by a private-sector advisory panel, which aims to have concrete proposals by April on the implementation of a global LEI system, with delivery to the G20 slated for its summit in June.
The FSB also agreed on next steps in the ongoing monitoring and public reporting of the implementation of its standards for sound compensation practices in the financial industry.