Donald Trump often upends conventional neoliberal wisdom, but one of the seemingly most frightening things the President-Elect espouses is contempt for the global order embodied in bastions such as the Bretton Woods international financial institutions, NATO, the UN, and the World Trade and Health Organizations. A less-known archetype of right global-order thinking is the Financial Stability Board. It has so far been spared by Mr. Trump, likely only because it has yet to come to his attention. Moving out ahead, two House Republicans vying for HFSC Chair are already insisting that each will, Samson-like, pull down the FSB’s banking, insurance, and securities pillars. Will the global financial system crumble to the lowest common denominator as FSB advocates proclaim? I doubt it. Indeed, shaking global financial standard-setters out of their well-stocked echo chamber could actually do global finance a world of good.
Like all the other global-order monuments, the FSB was founded with the very best of intentions. The 2008 crisis and warning tremors in the late 1990s proved at grave cost how financial earthquakes know no borders. What better than a new body of global financial standards akin to those that keep cross-border telecommunications humming to protect global banking, insurance, securities, commodities, and payments? And thus, the G20 brought forth the FSB in 2009.
The FSB promptly did the best it could as quickly as it could not only to ramp up subgroups such as a renewed Basel Committee, but also to tackle the absence of resolution protocols for the world’s largest financial institutions and ready-built groups with the knowledge needed to manage a crisis when it came. The FSB thus did its best to issue resolution how-tos and establish cross-border colleges, important achievements all. Still, it has nonetheless been unable also to achieve the G20’s over-arching goal: no more taxpayer bailouts.
Indeed, fourteen years after the FSB began, global resolution still relies on bailouts. The 2020 instability needed trillions from the Fed. Credit Suisse’s 2023 failure was less bad than it could have been thanks to cross-border coordination, but it nonetheless was still so dangerous that only an enormous Swiss bailout saved the day. And, of course, none of the Basel standards nor any of Dodd-Frank’s righteous reforms spared the U.S. in 2023 from a systemic scare and a taxpayer bailout.
What of the causes of these crises? Did the FSB do anything to stop them? The 2020 near-catastrophe the Fed expensively averted largely originated in the nonbanks from which U.S. banking agencies demurely averted their gaze as “shadow” banks quickly put more and more regulated banking services in the freezer. What did the FSB do? To its credit, it recognized shadow-banking risk, but then spent much of its time deciding that “shadow banking” was an unnecessarily-dark accolade, ultimately settling on the global bureaucratese of “nonbank financial intermediaries.” After 2020, the FSB quickly said NBFIs needed standards and so it has said in every annual report ever since as it holds meeting after meeting measuring NBFIs this way and that to consider one thing and then another.
Why is the FSB so ineffectual? Like many other global-order entities, it does not lack resources, international participation, or the good food and wine apparently essential to ensure effective cogitation. What it lacks is the willingness to recommend bold solutions that may bother one or another major member or, more fundamentally, to talk to anyone who doesn’t fly to Zurich and have the right invitation to participate in the right meeting.
Yes, the FSB does consultations, but these now are on sets of “high-level principles” so lofty in their aspirations as to have no meaningful, practical impact. More and more FSB policy statements lay out yawning risks and then go on only to recommend more data to judge the chasm and still more get-aways at which national authorities should talk about them.
So, should the U.S. walk from the FSB? Unlike blowing up the IMF, NATO, and even the UN, we won’t much miss the FSB. But the reason we won’t miss the FSB isn’t that we don’t need an FSB – the G20 got it right fifteen years ago. The problem is not with the FSB as promised; it’s with the FSB in practice.
What if there were a global body that eschewed both nonbinding, meaningless principles and minutiae-driven edicts – see the Basel end-game standards – that take so many years to produce that they’re outdated by issuance and even then unsuitable in key details in key jurisdictions? What if the FSB issued risk warnings with clear conclusions and actionable responses instead of ensuring it has data on every aspect of every transaction in every country over many years? What if the FSB stopped letting only national authorities and global financial companies tell it about a proposal’s impact and instead did effective impact analyses weighing not only financial-market resilience and competitiveness, but also financial inclusion and macroeconomic growth? It might just be my imagination, but I see an FSB the world not only needs, but wants.