Financial Stability Board: Is Its Institutionalization a Reality?

In: Mirovaja ėkonomika i meždunarodnye otnošenija: MĖMO, Volume 59, Issue 11, p. 78-90

Abstract

The article deals with the evolution of the Financial Stability Board (FSB) into a full-scale and sound authority of international banking regulation. Founded in 1999 as the Financial Stability Forum, the FSB has become an international body in 2009 overseeing the international financial regulation reform, also known as Basel III. Nonetheless, FSB's responsibilities and competence are still limited to the annual determination of global systemically important banks (G-SIBs) and the development of the reform strategies for G-20 consideration. FSB has already proved to be a credible coordinator of Basel III implementation. Its initiatives on effective resolution strategies and total loss absorbing capacity for G-SIBs not only notably contributed to the set of regulatory tools and techniques aimed at minimization of systemic risks and enhancement of stress resilience of the banking industry but also designed approaches to mitigate the threat of "too big to fail" banks for the national economy at large. However, new regulatory paradigm requires principally new metrics to measure macro- and micro-level risks. Yet synchronization of the regulatory reform at the national and supranational levels stands beyond the accepted scope of synergetic effect of the reform. This means that FSB's organizational status makes it less capable to be in line with financial sector dynamics, its growing interconnectedness and complicating infrastructure, and rapidly changing economic environment. Under these circumstances regulatory transformation lacks mechanism that would overcome fallouts of regulatory arbitrage as well as risks of shadow banking. Reform inconsistency may spur perilous effect of regulatory "glocalization" in that national regulatory regimes may stop abiding by most of the Basel III principles and standards, which may ultimately ruin sense, logic, and continuum of the reform. Shortage of factors that calibrate consistency and continuity of regulatory reform diminishes FSB's involvement into it. FSB's efforts in promoting basics of reform synchronization between national and international realms are weakened by fragmentation of the financial markets as well as by different adaptive abilities of financial institutions to the new regulatory order. On the other side, single-principles-centered quantitative and qualitative platforms of banking regulation are among the imminent traits of the global financial sector. The mentioned conflicts put on the agenda the inevitability of a higher international status of the FSB as a powerhouse of a single regulatory concept aiming at global financial stability. Driven by that mission FSB is urged to become an independent international institute to administer closer collaboration among national regulators as a regulatory information hub. This will decisively complement its kit of existing instruments in attaining more balanced reform implementation and will ensure synergetic effect when applying regulatory actions into risk identification and risk management as well as resolution and recovery of G-SIBs. Acknowledgements. The research was supported by a grant of the RFH, project № 15-02-00669/15 "Development of the conceptual framework for cross-border capital flow amid escalation of geopolitical risks for the Russian Federation".