Charting a course for the Financial Stability Board

Randal Quarles, Vice Chairman for Supervision at Federal Reserve gives a useful speech:

Let me begin with the principle of engagement, and let me lay the groundwork for this discussion by reviewing the way the FSB was established and its mandate, to see how we can continue to fulfill that mandate going forward. As we all know, the FSB was born out of the crucible of the 2007-09 Global Financial Crisis–a crisis that demonstrated in the starkest possible way the importance of global financial stability to the well-being of families and businesses around the world. In the months following the peak of the crisis, the world was struggling with financial market turmoil, and the resultant macroeconomic effects were felt by people everywhere around the world. It was clear that the response to this crisis needed to be global, and the G7 and G10, without any emerging market representation, were not the right bodies to organize a global response.

As such, the Heads of State and Government of the G20 called for the Financial Stability Forum (FSF), a relatively small and unmuscular group, to expand its membership and to strengthen its institutional framework. The result was the Financial Stability Board, which was designed as a mechanism for national authorities, global standards-setting bodies, and international authorities to identify and address vulnerabilities in the global financial system and to develop stronger regulatory and supervisory policies to create a more resilient global financial system. This new group is more representative of the interconnected global economy and financial system and can more effectively mobilize to promote global financial stability than anything that existed before. Whereas the FSF included only 11 jurisdictions (all of which were advanced economies), the FSB includes 24 jurisdictions and 73 representatives, which include all the members of the G20 and of which 10 are emerging market economies.

In fostering global financial stability, the actions of the FSB have the potential to affect the global economy and financial system in important ways. Success in promoting global financial stability should benefit everybody, through more sustainable and stronger economic growth. At the same time, financial stability policy will also affect institutions and markets beyond the FSB’s membership. Recognizing the wide-reaching effects of its work, the FSB must seek input from a broad range of stakeholders, each of whom brings a different perspective to the issues under consideration. While we are directly accountable to the G20, we are, through the G20, accountable to all of the people affected by our actions. In my view, that means we must engage in genuine, substantial dialogue with all of these stakeholders, to a greater and more effective degree than we have in the past.

He is also the chair of FSB now.

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