FSB Plans ASAP Action Not Just re NBFIs, But Also Bank Interconnections, Market Vulnerability
As promised again just last week, the Financial Stability Board today released a “holistic” plan for dealing with NBFIs along with an ambitious agenda for global standards as soon as next year.  FSB Chair Quarles’ letter today reiterates as does the report that global banks largely proved resilient through the crisis even though market-making capacity was reduced, increasing NBFI risk.  The FSB states that non-government MMFs, open-end funds, and leveraged hedge funds threatened the integrity of core markets in March and survived largely due only to central-bank support (which creates both risk to central banks and moral hazard).  Urging structural change to NBFIs, the FSB concludes that another crash is likely in its absence unless central banks again step in.  Although the NBFI plan does not stress the sovereign “doom loop” as a March risk factor, its detailed analysis determines this occurred; Mr. Quarles’ letter includes sovereign-debt vulnerabilities among the issues again on the FSB’s radar.

NBFI.pdf